Earnings Volatility Plays

[IV_Trader]

Quote from maninjapan:

hsmc, do you know which book of his specifically covers earnings plays? He seems to havea few there.

You are wasting your time but good luck anyway

 

[weewilly]

http://www.amazon.com/Volatility-Ed...?ie=UTF8&s=books&qid=1251844624&sr=8-4#reader

not the holy grail but some decent light reading.

 

[hsmc1970]

Quote from maninjapan:

hsmc, do you know which book of his specifically covers earnings plays? He seems to havea few there.

This is a nice little book goes into what happens with vol crush on positions.

I am sure it would be helpful with your earning plays for volatility.

http://www.amazon.com/Trading-Optio...ies-Winning/dp/0135058724/ref=pd_bxgy_b_img_b

I goes into expiration day volatility dynamics providing a framework for this.

Getting the most out of the book does require a understanding of using databases but its not to difficult to get your head around it.

His other book "the Volatility edge in options trading" and has some info on earning plays.

I got something out of both books.

 

[maninjapan]

Quote from IV_Trader:

You are wasting your time but good luck anyway

IV_Trader , Thanks for participating. Care to expand on that? You mean just in regards to those books? Or in regards to Earnings Volatility plays in general?

 

[IV_Trader]

Quote from maninjapan:

IV_Trader , Thanks for participating. Care to expand on that? You mean just in regards to those books? Or in regards to Earnings Volatility plays in general?

I didn’t read any of those books, but if they are writing three years ago, they are irrelevant because reporting vola pattern is broken. It’s practically impossible to guess future vola bases on historical levels or stock moves now. The calendar skew is even more complex because it varies based on where in the cycle of expiration xyz will report
RC are still OK sometimes, but one can’t lean of huge collapse in vola no more ( no pre-ramp = no after report collapse) , so you better pray that stock moves big

 

[maninjapan]

Quote from spindr0:

A single reverse calendar is problematic because you also have to get the direction right otherwise premium capture from IV contraction can be lost by a large move away from strike. To offset this, you can do double reverse calendars and tailor the risk graph to your liking. As mentioned by Kedwards, there's been a lot of discussion here on many things and a search will turn it up. For an interesting earnings play with ratioed double calendars, search for bebpasco's posts.

Spindr0, I've had a quick look at one of bebpasco's threads (in regards to RIMM). Quick question, is there are general rule as to whether a calendar strangle or a calendar straddle offers a better risk/ratio scenario?

 

[maninjapan]

Quote from IV_Trader:

I didn’t read any of those books, but if they are writing three years ago, they are irrelevant because reporting vola pattern is broken. It’s practically impossible to guess future vola bases on historical levels or stock moves now. The calendar skew is even more complex because it varies based on where in the cycle of expiration xyz will report
RC are still OK sometimes, but one can’t lean of huge collapse in vola no more ( no pre-ramp = no after report collapse) , so you better pray that stock moves big

IV_Trader, does this mean that the ramp in Volatility doesnt happen as much or as often as it used to? So we arent seeing as big an IV spread making a reverse calendar ratio spread less profitable?

 

[spindr0]

Quote from maninjapan:

Spindr0, I've had a quick look at one of bebpasco's threads (in regards to RIMM). Quick question, is there are general rule as to whether a calendar strangle or a calendar straddle offers a better risk/ratio scenario?

There's no general rule because there are so many moving parts (time remaining, IV, skew, ratio, etc.). You have to model/play with both and see what the respective risk graphs look like.

Regarding RC's, they tend to be best close to expiration so that the throwaway money is reduced (the long near month).

 

[spindr0]

Quote from maninjapan:

IV_Trader, does this mean that the ramp in Volatility doesnt happen as much or as often as it used to? So we arent seeing as big an IV spread making a reverse calendar ratio spread less profitable?

IV still ramps up but based on what happened last year, you can't look at the historical and extrapolate possible EA behavior since normal relationships have been seriously distorted (for example, take a look at the past year for AAPL and GOOG).

 

[maninjapan]

Spindr0, right, from what Ive looked at end of last year/ this year, the down trend in IV (slowly returning to 'normal levels') drowned out any ramp up in IV. I wonder though, if we see a return to more 'regular patterns' once IV returns to more familiar levels?