We all like to trade around earnings because of the immediate reaction we get from an earnings release. This is a double edge sword as you can have a big win or a big loss with no time to respond. For those that do not regularly trade earnings, you may not be aware of the importance of watching the unusual option activity. Unusual option activity can show you big buys or sells placed ahead of an earnings move and can sometimes give you a “heads-up” that something big may happen one way or the other.
One such example was last week as I was watching John Deere (DE). I noticed the day before the earnings release that there was a large PUT seller. The Put seller sold 15,000 contracts which is a rather larger size and caught my attention. Remember they are selling Put’s not buying which is a bullish position and means that the seller is counting on the stock going higher. As it turned out, the next day (11/23), DE reported a great quarter and went around $13 higher. The Put seller made a hefty $247,000 overnight. Nice trade!