Why I will not be a buyer in Options during earning seasons
Bramesh Bhandari
Whenever I see people buy lottery tickets in anticipation of making quick bucks or realizing there dream of becoming millionaire on the back of my mind I get the image of an Option traders who buys in anticipation of making his trading capital increase by several folds.. While a few bucks lottery ticket doesn't seem to be a lot of money to spend to win millions, the odds of you winning are slim to none due to the millions of different combinations of all the total possible numbers. We will be starting with earning season soon and many high flying names such as Infosys, Reliance,SBI just to name a few, traders may be tempted to make their next option trade similar to buying a lotto ticket with the hopes of winning big.To add to fact every month there are traders who buy Calls and Puts thinking about a black swan event to occur and turning there few thousands into millions again odds of you winning are slim or next to NIL.
In my opinion, an options lotto ticket is where an individual makes an out of the money call or put purchase based on an event that can drive up shares of the underlining stock higher or lower. These events usually include earnings, conference calls and media related events. The lottery part of the equation usually stems from a trader making a directional bet, with the anticipation that the news goes their way. If the news doesn't go their way, the contract will most likely expire worthless and one will most likely have little premium left since option traders are limited by the amount of time till expiration.
When one plays their state's lottery, tickets that are bought are also defined by time. In options, trading calls or puts for a particular expiry leading up to a big event, Most of Traders understand Options as Limited Risk game as risk involved is capital you have speculated but THINK if you looses the bet your whole capital will vanish and by any business sense it does not make a good trade. There is nothing wrong with making speculative out of the money call or put bets in the option market, but investors/traders should avoid making casino style bets, unless they have the discretionary income to do so.
There are certain group of people...
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