I have initiated a position for an earnings trade in JP Morgan. The trade is looking for a +4% directional movement or greater.
This is the inverse of a ‘sold’ earnings trade, where rather you will look for a directional movement of less than 12% (for example).
So rather than selling volatility, I am buying volatility.
There are advantages/disadvantages.
The major advantage is that the risk/reward is skewed much more closely to a 1:1 return, but the probabilities of the move are lower. This is contrasted to a high probability, but a very unfavourable risk/reward, somewhere around 1:5.
I have tried to skew the probabilities higher by trading the earnings release. The idea being that news will create enough of catalyst to move the stock +4%.