So Google barely meets earnings expectations, misses on revenues and jumps 16% post earnings, while Apple also beats earnings and revenues but drops 6%.  The bi-polar reaction to similar results has less to do with the actual earnings and more to do with timing, psychology and expectations.

What gives here?  We find the answers lie in options and expectations.  Simply put, when implied volatility rises sharply in front of an event the expectation for big movement (volatility) is high, and option players will have to pay up to play.  We see this happen all the time as the market prices in stock moves based on historical trends.

Yet, it drives us all crazy – doesn’t it?  Isn’t there some way of putting in some certainty and reliability of a move?  That is a great question, and the answer is no.  But if you step back a bit, realize that is an advantage!  If everyone ‘knows’ what a move is going to be — and it is correct, then where is the edge? 

Everyone will sell on the news and there will be no reason to buy.  The future of stock moves is always a ‘mystery’ and random.  This is why I look for clues using technical tools, charts, trends and option flow.  These are the guides that give me an edge regardless of the news.  While it’s not 100% bullet proof, this works for me a greater amount of time. 

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Learn more: Explosive Options