Earnings journal

oldmonk said:
Both metrics would be correlated to some extent, and the one that uses max actual move would give far fewer results. That said, both of them only use the current implied move, which has the problem I mentioned earlier. I now find it more useful (from backtests) to look at the observed/implied moves over the past several quarters. Basically we're trying to short vol on the stocks that tend to have the least surprises in their earnings reports. Also useful to look at the expected straddle value if the stock remains unchanged post earnings. That gives you an idea of your real R/R.
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By earnings surprise I guess you meant the underlying overnight move straight after the earnings release (only till the morning at open, and not until the end of that day)? I thought about mainly using "earnings surprise" as a key indicator, as I'd be exiting the next morning anyway, and in that case it really doesn't matter how far the underlying moves for the entire day historically ... just a thought.
 
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Really great words OM and Srinir!

I'll try and shine some light on why fundamentals are so important during earnings season - especially for a retail account where you can't (it's hard) trade 30 stocks at one time to collect the risk premium without large swings.

Would you want to sell vol on a company where 90% of its revenue/earnings come from 1 client (STMP)? Would you want to sell vol on a company that has delayed earnings report 2x and is in muddy waters with the SEC (KHZ)? How about on a company that stated they only incorporated 10% Terrifs into their FY guidance and 50% of revenue is from China? Time and time again I am seeing leaks in the reports and analysts/vol traders are not adjusting estimates/implied move. You guys should give it a try, read as much info as you can on the stock - Investor Relations, 10Q, 10k, news, stocktwits, confrence-calls, seasonal trends, estimates, competitors earnings, suppliers earnings.....I bet you, you will come out of it with a position that will be profitable! Ctrl-F is your best friend for getting through the 10K/10Q/Call transcripts. Fundamentals can drastically change q-q, so the implied vol should change with it (most times, it does not).

Here's also another little secret. There is a guy on stock-twits his name is @PineappleTrading. He trades earnings a lot and runs a subscription service. Fade him! Make sure after you have done your analysis, his opinion is opposite to yours.
 
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oldmonk said:
Both metrics would be correlated to some extent, and the one that uses max actual move would give far fewer results. That said, both of them only use the current implied move, which has the problem I mentioned earlier. I now find it more useful (from backtests) to look at the observed/implied moves over the past several quarters. Basically we're trying to short vol on the stocks that tend to have the least surprises in their earnings reports. Also useful to look at the expected straddle value if the stock remains unchanged post earnings. That gives you an idea of your real R/R.
More...

Thanks
 
Long-term lurker of these forums. Decided to finally sign up and start posting and joining the convos.

Just wanted to thank you guys for this thread, it is excellent and lots of wisdom and knowledge was gained for me from it.

Cheers!
 
Speaking of data, anyone have recommendation for reliable source of past implied moves in particular? Most of the other metrics I can probably get from the stuff I’ve already got.

Seems like a few people have set up their own stuff, is there anything reputable for subscription service at the moment? Sooner pay for something than do it myself.

My coding is pretty shoddy but I can eventually get from A to B after banging into a few walls. Mostly short on time/mental capital.
 
Magic said:
Speaking of data, anyone have recommendation for reliable source of past implied moves in particular? Most of the other metrics I can probably get from the stuff I’ve already got.

Seems like a few people have set up their own stuff, is there anything reputable for subscription service at the moment? Sooner pay for something than do it myself.

My coding is pretty shoddy but I can eventually get from A to B after banging into a few walls. Mostly short on time/mental capital.
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I have only found 2 ways to do it.
1. Pay $99 a month to orats + a one time $800 fee for a historical data dump.
2. (The way I do it). Get access to historical IV (orats from quandl $60 a month), filter out the day of/day before the event and calculate the implied move.

If you want, I can give you access to my application for a small fee.
 
Taking a crack at short CRM today. Seems to sustain a decent Avg Implied / Avg Realized spread historically as per oldmonk's advice. I was also looking at the current Straddle credit over the max historic earnings move as a loose proxy for R/R and it came out better than a few others I looked at over the past few days. I know in part we're collecting premium for the potential of tails bigger than those on the board but at least it's something to eyeball.

What's your guys preference for wing width? Bought the 5 deltas for propriety's sake but curious if anyone has found anything they like for optimizing risk:reward.

Looked at a bit of news too but there's so many inputs that I don't yet know how to synthesize effectively--hopefully there's nothing I missed there. Best of luck to anyone with positions on today!
 
Magic said:
Taking a crack at short CRM today. Seems to sustain a decent Avg Implied / Avg Realized spread historically as per oldmonk's advice. I was also looking at the current Straddle credit over the max historic earnings move as a loose proxy for R/R and it came out better than a few others I looked at over the past few days. I know in part we're collecting premium for the potential of tails bigger than those on the board but at least it's something to eyeball.

What's your guys preference for wing width? Bought the 5 deltas for propriety's sake but curious if anyone has found anything they like for optimizing risk:reward.

Looked at a bit of news too but there's so many inputs that I don't yet know how to synthesize effectively--hopefully there's nothing I missed there. Best of luck to anyone with positions on today!
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Great trade. I also was short vol here. Dollar wise the tails are never expensive going into earnings. You can usually buy 2.5 SD out on the wings for only a few cents. +3 SD moves are not uncommon during earnings. Plus it allows you to increase your vol exposure.

On a side note, CRM came out with a presentation at the end of April where they updated their estimates for this coming quarter. That was the final trigger for me. Great trade Magic. Should be a nice winner tomorrow.
 
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