Every quarter publicly traded companies must release their earnings, which indicates the amount of money the company has produced during the period. Along with guidance and the future outlook for the company, these factors determine what the stocks share price is supposed to be. Earnings is the most looked at and analyzed number in a company’s financial statement, so they are a big deal when determining the profitability of a company.
Stocks usually have a dramatic move after the earnings announcement. However, with the use of options, we are able to calculate about how far a stock is expected to move once the earnings announcement is made.
The video below indicates exactly how we can calculate a stock expected move a few days before the earnings announcement.