Trading Earnings Season: Options for Bigger Moves
How to Trade the Next Earnings Season: Goldman Sachs Recommends Trying Options for Bigger Gains
- Research suggests that options can help capture bigger stock moves during earnings, as implied volatility often underestimates actual swings.
- Focusing on sectors like utilities and healthcare could offer more opportunities due to expected high volatility.
- Evidence suggests using strategies such as buying calls for stocks poised to beat estimates, while acknowledging the risks associated with market uncertainties.
- The economic outlook, with modest growth forecasted by global bodies, supports steady corporate earnings but highlights potential for surprises.
Why Earnings Season Matters
Earnings season is that time of year when companies share their financial results, and stock prices can jump or drop quickly. Goldman Sachs, a big name in finance, thinks options are a smart way to handle the next one. They say the market might not be ready for how much stocks could move after earnings reports. This could mean chances to make money if you play it right, but remember, trading involves risks, and not everyone wins.
Goldman's View on Volatility
Goldman points out that options prices now suggest stocks will move about 4.5% after earnings, which is low compared to history. But in recent quarters, actual moves were bigger, like 5.4%. So, they recommend using options to bet on larger swings. This approach can be exciting for traders looking for action.
Basic Options Strategies for Beginners
If you're new, start with simple ideas. Buy call options if you think a stock will go up after good earnings, or put options if you expect bad news. More advanced folks might use straddles, buying both calls and puts to profit from any big move. Always check the implied volatility – high levels mean pricier options, but also bigger potential payouts.
For more on basic strategies, see Investopedia's Options Basics.
Economic Context from Experts
The Federal Reserve expects solid growth and possible rate cuts in 2026, which could boost company profits. This ties into why earnings might surprise. Keep an eye on these trends to inform your trades.
Have you ever wondered why some traders make a fortune during earnings season while others sit on the sidelines? It's all about understanding the buzz around company reports and using clever tools like options to your advantage. In this detailed guide, we'll dive deep into how to trade the next earnings season, drawing on advice from Goldman Sachs, who suggest trying options for potentially bigger gains. We'll cover everything from the basics to advanced tips, backed by real stats and examples, so you can approach the market with confidence.
Earnings season happens four times a year, when publicly traded companies release their quarterly financial results. These reports can cause stock prices to swing wildly – up if the news is good, down if it's bad. According to Goldman Sachs, the next season could be particularly interesting because the market's expectations for these swings (known as implied volatility) are lower than what might actually happen. According to their analysis, implied post-earnings moves for S&P 500 stocks sit around 4.5%, near a 20-year trough, despite historical data showing that realized volatility is often higher. Exceed this, like the 5.4% average two quarters ago.
Imagine you're a farmer checking the weather forecast – if it says mild rain but a storm hits, you're caught off guard. That's similar to volatility in earnings. Goldman Sachs strategists, led by experts like John Marshall, warn of a "volatility gap" where real swings could catch the market by surprise. This gap creates opportunities for options traders who can bet on larger movements without needing to predict the direction perfectly.
To set the stage, let's look at the broader economic picture. The International Monetary Fund (IMF) projects global growth at 3.1% for 2026, up slightly from 3.0% in 2025, driven by recovering economies in emerging markets. Meanwhile, the World Bank forecasts a slowdown to 2.3% in 2025 with a tepid recovery in 2026-27, citing risks from trade tensions and geopolitical issues. The Federal Reserve anticipates US GDP growth of around 2.1% in 2026, with possible interest rate cuts if inflation cools further. These trends suggest corporate earnings could remain strong, with Goldman forecasting 11% returns for global stocks, mostly driven by profit growth. However, uncertainties like AI-driven productivity or trade policies could lead to surprises in individual company reports.
In a world where asset values are rising and corporate earnings are up 11% year-over-year, as per recent data, traders need to be prepared. That's where options come in – they let you leverage these moves with limited capital. But remember, options can expire worthless, so education is key.
Now, let's break it down step by step.
Understanding Earnings Season and Its Impact
Earnings season typically kicks off in January, April, July, and October, with big banks like JPMorgan often reporting first. During this period, about 80% of S&P 500 companies release results within a few weeks, leading to heightened market activity. Stocks can move 5-10% or more on earnings day, far above the usual 1% daily fluctuation.
Why does this happen? Earnings reveal a company's health – revenue, profits, and future guidance. If a firm beats analyst estimates, investors cheer; if it misses, panic selling ensues. Goldman Sachs highlights that in 2025, many stocks saw larger-than-expected moves, and they expect this to continue into 2026 due to sector-specific factors.
For instance, utilities have shown abnormal volatility recently, possibly due to energy transition costs or regulatory changes. Healthcare, materials, and industrials are also flagged for high swings. Traders should watch these sectors closely.
Why Goldman Sachs Recommends Options
Options give you the right, but not the obligation, to buy (call) or sell (put) a stock at a set price by a certain date. They're perfect for earnings because they amplify gains from volatility without owning the stock outright.
Goldman advises buying single-stock options where their analysts have out-of-consensus views – meaning they think earnings will surprise more than the market expects. For stocks likely to beat, buy out-of-the-money (OTM) calls; for those at risk of missing, buy slightly OTM puts.
They list 25 stocks, including:
- Calls for upside: Meta Platforms (strong ad revenue), UnitedHealth Group (healthcare demand), Arista Networks (tech infrastructure), Robinhood (trading volume surge).
- Puts for downside: Texas Instruments (chip slowdown), Southwest Airlines (cost pressures).
This strategy leverages the fact that upside surprises often lead to bigger stock jumps than downside misses cause drops, due to market optimism.
Practical tip: Check implied volatility rank (IVR) – if it's over 50%, options are expensive, but earnings can crush it post-report, so sell before if holding premium positions.
Key Options Strategies for Earnings Trades
Let's explore strategies in detail.
Straddles and Strangles
A straddle involves buying a call and put at the same strike price, profiting from big moves either way. Ideal when you expect volatility but not direction. Cost: High, as you pay two premiums.
Example: If a stock is at $100, buy a $100 call and put. If it moves to $110 or $90, you profit after breakeven.
A strangle uses different strikes, cheaper but needs larger moves.
Tip: Enter 10-30 days before earnings, sell just before the report to capture IV crush.
Directional Bets with Calls or Puts
If research points to a beat, buy calls. Goldman likes this for stocks with improving fundamentals.
Tip: Look for open interest over 500 contracts and call volume over 5k for liquidity.
Covered Calls or Iron Condors for Income
For less risk, sell covered calls if you own the stock. Or use iron condors for range-bound expectations post-earnings.
Always use stop-losses and position sizing – risk no more than 1-2% of capital per trade.
Facts and Stats: The Deere Stock Example (Expanded Analysis)
Let's dive into a real-world example with Deere & Company (DE), the maker of John Deere equipment. This mini case study shows how options can play out during earnings, tying into broader economic trends.
Deere reported Q4 2025 earnings in November 2025. Options implied a ±4.9% move, but the stock actually fell 5.7%, exceeding expectations. This "IV crush" – where volatility drops post-report – hurt long option holders but benefited sellers.
Why the move? Deere cited slowing farm equipment demand due to high interest rates and commodity price dips. Yet, overall 2025 earnings beat estimates by 2%, with revenue up 5% year-over-year.
In the historical context, Deere's earnings moves averaged 6.2% over the last 8 quarters, vs. an implied 5.1%. Traders who bought puts ahead profited, as the stock dropped from $420 to $396.
Tied to macro trends: The Federal Reserve's rate policy affects farming costs – lower rates in 2026 could boost Deere's outlook, as per Fed forecasts of easing. IMF notes agricultural sector challenges in global growth, with 3.1% GDP rise potentially aiding exports.
Lessons: Always compare implied vs. historical moves. For Deere's next report in February 2026, if implied is low again, consider straddles. Stats show 60% of earnings beats lead to positive moves, but industrials like Deere have 7% average swings.
This case underscores Goldman's point: Undervalued volatility can be exploited with options.
Practical Tips for Successful Trading
- Research Tools: Use sites like Yahoo Finance for earnings calendars, Options AI for implied moves.
- Risk Management: Diversify across 5-10 stocks, avoid being all-in on one.
- Timing: Trade during liquid hours, watch pre-market reactions.
Suggest internal links: Our Guide to Options Basics, Top Stocks for 2026, and Volatility Trading Strategies.
External sources: Federal Reserve Economic Data, Goldman Sachs Insights.
Mini Case Study: UnitedHealth Group in Earnings Context
As one of Goldman's picks, UnitedHealth Group (UNH) provides a great example. In Q3 2025, UNH beat earnings by 3%, and the stock rose 6.2% post-report, exceeding 4.8% implied move. This was amid healthcare spending trends noted by the World Bank in global prospects. Traders buying OTM calls profited handsomely. For 2026, with the Fed easing, boosting insurance demand, UNH could see similar upside.
Conclusion
Trading the next earnings season with options, as Goldman suggests, can be rewarding if you focus on volatility gaps and solid strategies. Remember key takeaways: Expect bigger moves, use directional or neutral plays, and manage risks. Start small, learn from examples like Deere, and stay informed on economic trends from the IMF, World Bank, and Fed.
Ready to try? Open a demo account with a broker and practice. For more tips, subscribe to our newsletter or check our related articles. Happy trading!
Expanded FAQs
What’s the best way to trade options when earnings volatility spikes?
Straddles or strangles for volatility plays, calls/puts for directional bets. Trending now: Many ask about IV crush avoidance – sell before report.
How does volatility affect options during earnings?
High IV inflates premiums; post-earnings crush can erode value. Current trend: Questions on IV rank over 50% for entries.
Which stocks should I watch for the next earnings?
Goldman's picks like Meta, UNH. Trending: AI stocks like Nvidia for big moves.
What risks come with trading earnings options?
Loss of premium if no move, or wrong direction. Popular query: How to hedge with stops.
How do economic trends impact earnings trades?
Fed rate cuts boost growth; IMF growth forecasts signal steady profits but risks. Trending: Effects of trade wars on 2026 earnings.
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