Directional trades prior to earnings

[oldmonk]

Buying straddles before earnings is a well known non-directional trade that seeks to benefit from increasing IV and/or a move in either direction. My backtests (using just stock prices) show that many stocks (especially tech) tend to drift up prior to earnings.

Also, it's possible that the stock has a directional move upwards that's not large enough to cover the cost of a straddle. This would not be an issue when you just have a call. So is it a better play to simply buy ATM or slightly OTM calls a few days prior to earnings and close them just before the earnings release?

 

[OptionsOptionsOptions]

....... So is it a better play to simply buy ATM or slightly OTM calls a few days prior to earnings and close them just before the earnings release?

Yes .......... And perhaps close them after earnings - for that extra kick.

 

[oldmonk]

I meant compared to straddles. Which gives you the better kick?

 

[TheBigShort]

Hey man, @OptionsOptionsOptions is lurking around this forum to spread his/her divine knowledge. I will let you know that, companies such as JPM, GS etc.. are going out of there way to learn about internet of things where they can track how many people have walked into LULU stores, how much electricity LULU is using etc... no need to try and guess the direction. This has thoughtfully been applied/investigated by so many before you. @OptionsOptionsOptions will tell you to buy deep OTM calls. You will end up with his fate. Broke.....

 

[OptionsOptionsOptions]

I meant compared to straddles. Which gives you the better kick?

OTM calls or puts only - no straddles.

 

[oldmonk]

OTM calls or puts only - no straddles.

great, thanks. time to go all in.

 

[OptionsOptionsOptions]

great, thanks. time to go all in.

Just what you are prepared to lose. The debit is your "stop-loss".

 

[oldmonk]

Just what you are prepared to lose. The debit is your "stop-loss".

i thought you were trolling earlier, but now i'm not so sure. either way, thanks for the input.

 

[OptionsOptionsOptions]

i thought you were trolling earlier, but now i'm not so sure. either way, thanks for the input.

• Very few people on this site like strangles/straddles.
• For directional trades you are better off with long calls or puts - not strangles/straddles.

 

[oldmonk]

• Very few people on this site like strangles/straddles.
• For directional trades you are better off with long calls or puts - not strangles/straddles.

maybe my question wasn't clear enough. i'm not asking how to make directional trades. it's a question about long option plays prior to earnings.