Are you prepared for the upcoming Q3 earnings season of popular stocks?

This sharing will focus on the following aspects:

This week, Taiwan Semiconductor releasedan impressive report on September sales performance - around 8 billion US dollars in revenue for September, up by 39% year-on-year.Annualized revenue of about $100 billion, historically, the company's performance announcement values have been higher than the forecast, combined with the known revenue data, the focus of the performance release will be on:Whether the Q3 revenue, EPS, and EBIT values can significantly exceed expectations?

Looking at the stock price trend: Since September, taiwan semiconductor's stock price has shown multiple "V"-shaped reversals, rebounding after hitting a low of $155.385, breaking through several important moving averages (MA20, MA30, MA60). Currently, the moving average system shows a bullish alignment, especially the MA20 gradually diverges upwards, providing good support for the stock price. The latest stock price is close to its historical high. If Q3 exceeds expectations, it will likely continue to rise.It is expected that before and after the announcement of this performance, the stock price may break through $192.845 and reach a new historical high.

Compared to Taiwan Semiconductor, which is far ahead in performance, tesla's recent news can be described as "a mixed bag": On October 3, Tesla announced its Q3 delivery and production data. Although it achieved sales growth in the first quarter of this year, the quarterly delivery volume still did not meet market expectations. After the data was released, Tesla's stock price plummeted by 6% and closed down by 3.49%. So the focus of this performance announcement is:Can the Q3 revenue bring surprises, and can EPS and EBIT exceed expectations?

Earnings season is always full of temptations and pitfalls. Many friends may have experienced this: accurate performance expectations, correct price direction judgment, but ultimately making little profit or even losses in options trading. This is mainly because people overlook a key indicator:Implied volatility (IV)

So today, I want to start with implied volatility to talk about how it "disrupts" during earnings season, and how to avoid these pitfalls.

Implied Volatility (IV) represents the market's expectation of future stock price volatility, derived from the market price of options. In contrast, there is also a Historical Volatility (HV), which is calculated based on past stock price data volatility. In short, IV is forward-looking, while HV represents the past.IV reflects the future, while HV represents the past.

Basically, IV tends to significantly increase in upcoming eventsrise(such as earnings season, eve of policy announcements), specifically showing a significant increase compared to Historical Volatility (HV), mainlyBecause the market tends to anticipate higher volatility when facing future uncertainty.

Before the financial report is released, IV will rise above HV, from the perspective of option value composition:The price of an option = intrinsic value + premium for potential volatility (time value).

For example:

And as it approaches expiration, one of the components of option prices, time value, is almost zero. In this scenario, even if the direction is correctly predicted in time (price rises to 197 USD), the overall profit and loss is still negative! Therefore, to truly profit from options investment, attention to the IV indicator is also needed!In order to profit from options investment, it is crucial to pay attention to the IV indicator!

Since the extraordinary impact of IV has been realized, when entering the earnings season, we should avoid these "volatility traps". Here are some insightful tips to share:

1) Carefully choose the buying timing: Generally speaking, the IV is high on the eve of the financial reporting season. If you want to avoid losses caused by volatility collapse, you can choose to build a position 1-2 weeks in advance, or you can also consider buying options directly after the financial report is released.(However, this may also result in missing out on the high leverage returns from the drastic fluctuations in stock prices).

2) Utilize a short strategy to gain premium: When IV is high, consider selling options to hedge the risk of volatility collapse with higher premiums, for example: before the financial report is released,(At this time, the option price is relatively high). After the release event, if the stock price does not reach the strike price and the option price shrinks significantly due to a sharp decrease in IV (at this time, the option price is lower), I can buy back the option to lock in profits.(At this time, the option price is relatively high), waiting for the end of the conference. If the stock price fails to reach the strike price and the option price shrinks due to a significant decrease in IV (option price is relatively low at this time), I can buy back the option again to lock in profits.

I hope everyone can interact more in the comments section and engage in friendly communication!