Could you explain how this position would make money? I understand you're effectively short vol for the near dated expirations and long vol for the further dated ones. So are you expecting the IV crush following the earnings release to increase the slope of the term structure?
Directional trades prior to earnings
- Thread starter oldmonk
- Start date
Could you explain how this position would make money? I understand you're effectively short vol for the near dated expirations and long vol for the further dated ones. So are you expecting the IV crush following the earnings release to increase the slope of the term structure?
When I used to actively trade earnings, I did just that when the near week's IV expanded a lot than a later week, preferably the following week. The majority of position stayed within the body and the far week then had salvage value. Where the EA surprise blew through both strikes, the loss on the wings was greater than a conventional IC but since this occurred less frequently, the offset was favorable. I got away from doing these because it took a lot of sifting to find higher potential positions and I'm more complacent these days ;->)
Sometimes you have to trade a strategy to see what it has to offer rather than postulating what you think it has to offer. And given that the loss limits are bounded, there's no steamroller operating.
If the trader thinks the underlying will....
- ..... move up or down after earnings - but not enough to justify the premium on the near dated options. And .....
- ..... continue momentum into the following weeks.
smh... now calendars are momentum trades? you really give away a ton of golden nuggets on ET for free. You should be charging for that kind of insight....
Your back month option has more vega than your front so you can't really say vol crush in the front month option. It's all relative. Anyways you have to be right on the earnings move as well as how the term structure will change after the earnings event. A noble task to say the least.
also from what I read, straddles don't apply for investment interest expense deduction.. it's the only option play you can't deduct that margin interest from???
I like: selling calls then closing before, or just buying far OTM options with extensive research, and this half the time results in not making a play as the OTM options are not available far enough, or if say we have a huge jump higher the farther OTM close up shop..
the biggest thing here is just do some and be willing to pay for your lessons, the best kind as you usually don't forget them! you can read and guess and plan all day long, but that experience will teach you twenty times faster then any available learning method.. and no I'm not a fan of paper accounts, it's fake thus you you treat it or get the same emotion from a real account with real money on the line.. once again real experience just teach so much faster.. go make you straddle / long call / short put / strangle .....
I like: selling calls then closing before, or just buying far OTM options with extensive research, and this half the time results in not making a play as the OTM options are not available far enough, or if say we have a huge jump higher the farther OTM close up shop..
the biggest thing here is just do some and be willing to pay for your lessons, the best kind as you usually don't forget them! you can read and guess and plan all day long, but that experience will teach you twenty times faster then any available learning method.. and no I'm not a fan of paper accounts, it's fake thus you you treat it or get the same emotion from a real account with real money on the line.. once again real experience just teach so much faster.. go make you straddle / long call / short put / strangle .....
I have been using them for a while - they send out alerts which until a while ago focussed on long positions ahead of earnings for stock (and get out before announcement). These have on the main been good but as ever timing your buying selling is important and above all take into account the stop win/loss or things turn out poorly.
Recently they have suggested some more creative things - generally I dont think they have the same batting rate as the straight out earnings plays. Straddle plays have been losers every single time and sometimes big losers - still the scope of my experience is too small to judge overall.
As a tool to research what happens during and post earnings and narrow down a good time frame this is a useful tool. I pay 45$ a month which I find reasonable because I would alternatively need access to a quotes database for researching these things. I find it less useful than I hoped but more useful than not.
If you have specific questions let me know.
I used to trade a lot of EAs. Sometimes, the back week (one or more out) did not inflate as much. You could get a rough idea of where the back week would contract to by looking at the option chain. More importantly, if the R/R ratio on the position's graph was 3:1 or better, the odds of success were much better because it provided more room for slippage and an inaccurate, at best, IV assumption.