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.

Recommendations:

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:

Disclosure information was not immediately available for either guest.

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