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Wanna Trade Earnings? Watch Options


Earnings season is in full gear. How can you game the market and play the disappointing earnings before they're reported? Jon Najarian, co-founder of optionmonster.com, and Andrew Wilkinson, senior market analyst at Interactive Brokers, both say the key is watching options trading.

Najarian addressed Wachovia's surprise first-quarter loss, refinancing, planned job cuts and slashing its dividend. He then noted his own prescient statements to CNBC on Friday: "As I said, there was very strong, unusual activity in WB [options]."

  • Learn more: Watch the entire interview (5 mins, 33 secs)

"Somebody knew about [Wachovia's finances] -- I can say that with absolute certainty," said Najarian, who is also a regular on CNBC's "Fast Money."

Wilkinson agreed: "The catchword is always 'volatility'."

He noted traders' "strangle play" on Washington Mutual -- but believes that hectic options activity is more a product of "good research" than any special knowledge.


So what companies' pre-earnings options should investors be watching?

"Take a look at Honeywell, which reports on Friday," advised Najarian.

He also notes that job-search Web site Monster Worldwide "was hit hard over the past year." Its options activity hints that "people believe something may be happening."


Disclosure information was not immediately available for either guest.