The previous short-term trading strategies mostly did not work, so this is what i am thinking. During earning season, buy soon-to-expire but not expiring like 1-2 days from now a day before earning call to minimize the buying cost.
And for that, I mostly bought straddle and expect to move a lot. But if volatility is failed to materialize, then straddle will lose almost all of its value or most had I bought options expiring in 1-2 days. Since I am no insider and almost no way of telling how the tomorrow's earning can be, that part is almost a pure gamble. The market is totally unpredictable and irrational in that aspect not to mention.
Instead if I stretch it few days or 1-2 weeks (somewhere around 10-20 days from now), then I notice that cost will not increase much but on the next after earning call, it doesn't decay as much as the one expiring in 1-2 days. So this seem to decrease a risk a lot yet keeping the reward high.
So here is a hypothetical scenario: Company A with stock 150$ is reporing earning call, expects lot of volatility but also possible it fails to move.
- buy call/put strike price 150$ expiring two days from now, total cost 15$ for total of 1500$. Now tomorrow company A reports and stock moves 15% up/down and I reap the gain of ~150-200% and sold for ~3000$-4000$. (call is now 300$ and put is now worthless or vice versa). or Company stock fails to move significantly (3-4%) and both calls and puts are almost worthless because it completely decayed and i recovered about 10% by selling both call/put at 150$
Now changing to strategy:
- buy same strike priced 150$ straddle but now expiring about 15 days from now on. From looking at several options, difference in price between 15 days or 2 days from now was not that much actually (surprised), it was perhaps 15-20% costlier. Lets say it costs 20$ as compared to 15$ in previous instance.
Now company stock moves wildly 15-20% and now i expect to reap bit less than still sizeable: perhaps 100-150% and sell for roughly 2500-3000$ that initially costed 2000$.
Now the loss case will be much better. Stock fails to move significantly and moved around (3-4%) but options will still have significant time value left and will lose about 20-30$ of its value. So I sold it for 1700$ that originally costed for 2000$.
Now all these are ball park figure that I sort of came up based on mostly observation.
Also, one thing I kept in mind was to compare the cost of options to actual stock price.
If either call or put price is more than 10% of the stock price, then probably do not bother:
i.e. if NTNX stock is 20$ and call and put each costs about 2$ (totalling 4$ for straddle), then 20$ stock has to move a lot to get even (need to move at least 20%).
On the other hand, lets sat NFLX current price is 150$ and call and put each costs about 3$ then straddle will be around 6$. In that case, straddle cost is less than 5% of stock price, so the stock needs to move much less than the NTNX to get even.
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And for that, I mostly bought straddle and expect to move a lot. But if volatility is failed to materialize, then straddle will lose almost all of its value or most had I bought options expiring in 1-2 days. Since I am no insider and almost no way of telling how the tomorrow's earning can be, that part is almost a pure gamble. The market is totally unpredictable and irrational in that aspect not to mention.
Instead if I stretch it few days or 1-2 weeks (somewhere around 10-20 days from now), then I notice that cost will not increase much but on the next after earning call, it doesn't decay as much as the one expiring in 1-2 days. So this seem to decrease a risk a lot yet keeping the reward high.
So here is a hypothetical scenario: Company A with stock 150$ is reporing earning call, expects lot of volatility but also possible it fails to move.
- buy call/put strike price 150$ expiring two days from now, total cost 15$ for total of 1500$. Now tomorrow company A reports and stock moves 15% up/down and I reap the gain of ~150-200% and sold for ~3000$-4000$. (call is now 300$ and put is now worthless or vice versa). or Company stock fails to move significantly (3-4%) and both calls and puts are almost worthless because it completely decayed and i recovered about 10% by selling both call/put at 150$
Now changing to strategy:
- buy same strike priced 150$ straddle but now expiring about 15 days from now on. From looking at several options, difference in price between 15 days or 2 days from now was not that much actually (surprised), it was perhaps 15-20% costlier. Lets say it costs 20$ as compared to 15$ in previous instance.
Now company stock moves wildly 15-20% and now i expect to reap bit less than still sizeable: perhaps 100-150% and sell for roughly 2500-3000$ that initially costed 2000$.
Now the loss case will be much better. Stock fails to move significantly and moved around (3-4%) but options will still have significant time value left and will lose about 20-30$ of its value. So I sold it for 1700$ that originally costed for 2000$.
Now all these are ball park figure that I sort of came up based on mostly observation.
Also, one thing I kept in mind was to compare the cost of options to actual stock price.
If either call or put price is more than 10% of the stock price, then probably do not bother:
i.e. if NTNX stock is 20$ and call and put each costs about 2$ (totalling 4$ for straddle), then 20$ stock has to move a lot to get even (need to move at least 20%).
On the other hand, lets sat NFLX current price is 150$ and call and put each costs about 3$ then straddle will be around 6$. In that case, straddle cost is less than 5% of stock price, so the stock needs to move much less than the NTNX to get even.
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