atticus' "ship it" vol trading journal
- Thread starter atticus
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What I'm saying is that the past earnings average about a 10% move. Past earnigns are volatile - it has been 5% and it's been 17%. I have no reason to believe it will be either 5% or 17%, so take the average of the 5 earnings dates since the IPO.
For the straddle to carry, you need to see 35 vol on all the non-earnings days and 10% on the earnings day.
For this to be rent free:
1. we need see 2%/day until the earnings day to add credibility to the 35 vol aspect
or 2. the market needs to think earnings move will be 15%
I don't see any reason to believe either of those conditions will be met. Maybe you are seeing something else though.
Then the market needs to hold 1 of those 2 criteria to maintain a $14 straddle price.
I see either the market is pricing:
1. 14% earnings, and 28 vol outside of that or
2. 10% for earnings and 43 vol outside of that.
It's carrying close to 28 vol and average earnings move is 10%. So the straddle is overpriced unless the market prices in more for earnings or more volatility after earnings. (breaking out the two before the event will be difficult to do, but the combined price is all that really matters).
Just based on the history, I don't see why the market would price in one of the criteria in my other post.
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