The results are out. The stock jumps 5% at the open. You rush to buy a call at 9:16 a.m. By noon, the stock has surrendered half its gain, and your option is down 30%.
The first move after results is often noisy. Prices jump, traders panic, and option premiums change sharply. The better opportunity usually appears after the excitement fades, when the market begins to show whether it truly believes the news.
The opening price can exaggerate emotion. Waiting gives buyers and sellers time to reveal conviction and reduces the chance that a temporary gap becomes an expensive trade before the real trend becomes visible later.
Before results, you are trading a guess. Implied volatility, or IV, is high because investors are paying for uncertainty. After the announcement, the uncertainty disappears. IV usually falls, and options become less expensive. You are no longer predicting the news. You are judging the market’s response to known information.
Large institutions also need time to adjust their positions. That is why a strong reaction can develop into a trend lasting several days.