That was the advantage you had with QQQ-- you have more time.
So you are not playing the alpha of appl but the effect of alpha change of appl on the deltas of QQQ calls.
AAPL - Earnings this Monday - Buy OTM QQQ weekly calls on Monday
- Thread starter FXforex
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That was the advantage you had with QQQ-- you have more time.
So you are not playing the alpha of appl but the effect of alpha change of appl on the deltas of QQQ calls.
Why you did not sell Jan instead? A hypothetical for tomorrow as a comparison.
AAPL will hit 560s within a short amount of time, relatively speaking, , buy the dips.
Tomorrow early AM dip, then rip higher, the market wont reverse IMO until Wednesdays FOMC minutes, marking a DCH, we correct for a week or 2, then march higher towards 1800.
Break-even of an option is not the same thing as implied move for a single day which you are going to delta hedge.
Let's say the weekly straddle is priced at 1.75% - since a straddle price is approximately 0.8 * volatility * sqrt(T), the average implied volatility is 0.0175/(0.8*sqrt(5/252)) = 15.5%. This "average" is a combination of 1 large event move and the regular volatility, which you can impute from longer-dated options (it's like 11% annualized). So, average_vol^2 = ((T-1)*regular_vol^2 + event_vol^2); rearranging it you can solve for the event vol, sqrt(((5/252)*.155^2 - (4/252)*.12^2)) = 1.57%.
You 83.5 calls should be worth very little even with the implied move, as an estimate, (0.16 * 0.4 * sqrt(4/252)) - log(83.50/82.92) * 0.5 = 0.0045, .45% * 82.92 = 0.35 cents.
PS. I am at the park walking the dogs, so calculations are a bit on the rough side, but should be ok.
PPS. the right way to calculate the implied move is to solve a system of two equations from two implied vols, but the rough calc above is good enough