Why can’t the financial reporting cycle be Sell Put?
Reasons for the surge in IV before and after the financial report
Before the financial report is released, the market does not know whether the company's profits are good or bad, and uncertainty reaches its peak.
This uncertainty is reflected in implied volatility (IV):
- 1-2 weeks before earnings: IV starts to climb
- Earnings day: IV reaches its peak
- After the financial report: IV quickly collapsed (IV Crush)
Impact on Sell Put:
| stage | what happened | What happens to your Sell Put |
|---|---|---|
| Open a position before the financial report | IV is high and the premium looks attractive | The actual risk is underestimated and the exercise probability may be distorted |
| After financial report | IV Crush, Put Prices plunge | If you are the seller, this is good for you...but what if the option is exercised? |
| Stock price gapped | The range of rise and fall is much larger than usual | Big drop = your option is exercised and the loss far exceeds the premium |
In a word: Sell Put before the financial report is equivalent to setting up a stall in front of the casino. The winning rate may be high, but losing once is huge.
Rule suggestions
Iron rule: Do not open new Sell Put positions within 2 weeks before the financial report is released.
How Hyperstock can help you:
- The analysis results page displays the financial report date stamp
- Automatic yellow warning for contracts 2 weeks before earnings report
- The contract one week before the financial report has a red warning and it is not recommended to operate.
What to do if you already hold a position
If you have Sell Put before, the target is about to release financial reports:
Option 1: Buy to Close
Acknowledge the risk and close your position early. There may be small losses or small profits, but uncertainty is avoided.
Option 2: Roll Out (extension)
Buy to close the current contract and sell the Put of the further month. Push risk back.
Option 3: Roll Down (price reduction)
If you are worried about the stock price falling, you can roll to a lower exercise price to reduce the risk of being exercised.
Option 4: Take it hard
If you are extremely confident in the company's fundamentals, you are willing to take over shares. But make sure you have sufficient funds and be willing to accept a sharp drop in stock prices.
Summarize
| Condition | Operation suggestions |
|---|---|
| Want to open a new position before the financial report? | Don't open |
| Position already held, financial report is 1-2 weeks away | Consider closing or rolling |
| Already holding a position, financial report will be released tomorrow | The decision-making window is closed, be prepared to take over shares |
| After financial report IV Crush | The royalty is cheap, but the direction is clear, re-evaluate |