Trading on Corporate Earnings News Profiting from Targeted, Short-Term Options Positions

John Shon is Professor of Accounting at Fordham University’s Gabelli School of Business and Graduate School of Business Administration. He has received several teaching awards throughout his teaching career. Shon publishes extensively in academic journals and has received several grants and awards for his research on equity markets. He holds a Ph.D. in Accounting and an MBA in Finance from the University of Chicago’s Booth School of Business.

Ping Zhou, Portfolio Manager and Senior Vice President of the Quantitative Investment Group at Neuberger Berman, currently manages U.S. and global equity funds for institutional investors. Zhou’s expertise is in portfolio theory, market anomalies, investor behavior, corporate finance, and risk management. He previously served as Accounting Professor at City University of New York—Baruch College. He holds a Ph.D. in Accounting from Georgia State University.

Acknowledgments     xii

About the Authors     xiii

Preface     xiv

P ART I: I NTRODUCTION

Chapter 1: Introduction     3

P ART II: T HEORY : E ARNINGS A NNOUNCEMENTS AND E ARNINGS S URPRISES

Chapter 2: Earnings Announcements: Why Are They So Important?     13

Chapter 3: Earnings Surprises: Definition and Measurement     23

Chapter 4: Earnings Surprises: Empirical Evidence     39

PART III: E VIDENCE : M ARKET R EACTIONS

Chapter 5: Market Reactions to Earnings Announcements     49

Chapter 6: Market Reactions to Earnings Surprises (Are Full of Surprises)     57

PART IV: I MPLEMENTATION : O PTIONS T RADING S TRATEGIES

Chapter 7: General Characteristics of Optioned Companies and Options Behavior Around Earnings Announcements     71

Chapter 8: Practical Considerations Before Implementing Trades     77

Chapter 9: Directional Bets: Long Calls, Bull Call Spreads, Long Puts, and Bear Put Spreads    97

Chapter 10: Long Straddle and Strangle Strategies     111

Chapter 11: Short Straddle and Strangle Strategies     135

PART V: F INE T UNING : I MPROVING THE O DDS OF A P ROFITABLE T RADE

Chapter 12: Growth Expectations and the Torpedo Effect     153

Chapter 13: Revenue and Expense Surprises     161

Chapter 14: Earnings Surprise Persistence     167

Chapter 15: Other Theories and Evidence     175

References     189

Index     197

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