If you’re a stock market trader I think you’ll want to pick up a copy ofÂ Trading on Corporate Earnings News by John Shon and Ping Zhou. It’s a book that’s focused on short-term options trading, but which could have a fair bit of value to non-options traders and general market watchers as a whole. The authors are a pair of PhDs (Shon is an academic, Zhou a portfolio manager)Â who really get into the numbers about what stocks do around earnings announcements. It’sÂ interestingÂ and potentially quite useful stuff if you track stocks at all.
Don’t worry about the PhD thing, though. This isn’t an academic paper. The language is very easy to read and there isn’t a bunch of Greek in the text. What they have done is incorporate a considerable amount of academic research (7 pages of references)Â about earnings forecasts, price performance, and related subjects into a pretty well done discussion which features loads of visuals.
The book starts off by taking an in-depth look at earning surprises, including empirical evidence of how they are distributed and how their patterns have tended to change over time. It then moves on to look at how stock prices react to earnings surprises. I outlined some of their results in Some Numbers on Stock Market Earnings Reactions. The rest of the book focuses on options trading strategies.
By the way, there’s nothing too complicated about the option strategies, so even if you’re not an experienced options trader you shouldn’t have much problem following along with the discussion. There are lots and lots of examples provided and explained. I would have liked to have seen some empirical data on the performance of the strategies outlined, though.
Short-term options trading is not my personal thing, and I was well aware of the different types of options strategies that could be employed for the type of trading the authors discuss in this book. Still, I found it a very worthwhile read for the information presented on earnings estimates and how the markets react to earnings releases. It’s information I could very likely put to use in other ways in my market analysis and trading. From both perspectives I think it’s a good read.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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