Equity option trading

Quote from kurga:

why do you think IV 74 is high for this stock?????
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Generally, you want the IV to be around 50 for earning stocks, and most of the time you will get them around 40-60. With an IV between 40-60, a 10% stock move will give you over 100% in option gains. At IV of 75, a 10% stock move will give you option gain of only 75%. If you can find earning stocks giving you option IV in the 20-30 level, you'll only need 5-7% move to make 100%. And when those low vol. stock makes surprises you risk/ratio just increases.

But in general, you don't want to trade with IV above 80, and there are some options that can have IV as high as 150 before the stock reports earnings. That kind of number creates a negative risk ratio, that just doesn't give you the reward for your risk.
 
Almost bought DRYS calls.....Look for some DRYS calls tomorrow morning, we are going to get an implied volatility crush from 75 back into the 50s, and options should be ripe in the morning to trade DRYS as a momentum move going forward.
 
Quote from optiontrader:

Generally, you want the IV to be around 50 for earning stocks, and most of the time you will get them around 40-60. With an IV between 40-60, a 10% stock move will give you over 100% in option gains. At IV of 75, a 10% stock move will give you option gain of only 75%. If you can find earning stocks giving you option IV in the 20-30 level, you'll only need 5-7% move to make 100%. And when those low vol. stock makes surprises you risk/ratio just increases.

But in general, you don't want to trade with IV above 80, and there are some options that can have IV as high as 150 before the stock reports earnings. That kind of number creates a negative risk ratio, that just doesn't give you the reward for your risk.
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Be careful about saying you want vol to be around 50 for earning stocks. You cannot use a general guideline for all stocks when it comes to IV. You need to compare IV only to itself and relative range.

50 may be high vol for GE but low vol for GOOG.

I GUARANTEE your performance will improve if you truly understand implied volatility and its characteristics and why you might be incorrect about arbitrarily not looking at stocks with IV numbers you deem high. First off all earnings play will most likely have inflated vols so buying lone calls is buying inflated premium. When the IV drops you need a strong delta move to overcome that IV crush.

In laymen's terms you are running uphill most of the time so do not underestimate the importance of vols. Fundamental and technical analysis will not help you with the actual option positions.

If you learn about vols you will learn how to spread positions to reduce effects of vols or cost of your position. For example you can buy bull call spreads instead of calls and adjust your risk better while negating to an extent the effects of vol collapses or drops. You can use so many other volatility strategies to make your directional bets.

Many option traders start out with misconceptions or insifficuent information on IV and they usually do not realize how it affects their trading. Seeing you say avoiding stocks with IV above 80 leads me to believe you might want to dive into IV learning a little more and you will be amazed how much better a trader you will be.

IV is never too high or too low simply looking at a number like 79. IV is only high or low relative to where the IV has traded in the past.
 
Quote from optiontrader:

Still holding AZO June 135 calls, but adding 10 CRM June 70 calls at $1.70 for $1712.95 cost.
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For example to what I said above, I sold volatility going into AZO earnings through the 125 straddles in JUNE. VOLs were about 40% when I sold the straddles at 12.50 and this morning vols dumped to about 31 and I closed the straddle at 10.40 for 2.10 profit.

I am not advising you look at short straddle as you are not ready for them yet nor have the experience or margin, but look at how the vols dropped and being long premium put you at a serious disadvantage.
 
Quote from optioncoach:

For example to what I said above, I sold volatility going into AZO earnings through the 125 straddles in JUNE. VOLs were about 40% when I sold the straddles at 12.50 and this morning vols dumped to about 31 and I closed the straddle at 10.40 for 2.10 profit.

I am not advising you look at short straddle as you are not ready for them yet nor have the experience or margin, but look at how the vols dropped and being long premium put you at a serious disadvantage.
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Thanks for the advice optioncoach, I'll take them as they come. As for IV, I do have a pretty good understanding of their movements, sorry about the broad comment on IV. When I started, I used to always check current IV with a 3-month range and 6-month range (optionsxpress creates a nice graph on this). Now a days, I know that most stocks will have their IVs jump to about 50-70 before earnings, and fall back to about 25-40 after earnings. I'm not referring to all stocks, but I've traded earnings for 6 years, and have seen over 1000 stocks and their respective IVs. In fact, you'll the the individual IV of that option to get an even better reading, otherwise there can be great differences.

As for short straddles, and even long straddles or strangles, I find that they take up too much commission (although this was then before most brokerages started lower fees), and their reward is quite low compared to straight calls. My research is more directional ahead of earnings and based on the movement of the underlying stock. On average, most stocks will move about 10% higher or lower, with 25% making a smaller move, and 25% making a bigger move. My strategy predicts a stock's post earning movement ahead of the move.

Ex. I just started posting here, but I had a nice 500% gain on FLR calls buying on 5/12 and selling it on 5/13. It's not that I use a nice option strategy, it was plain old straight call buying. Instead, I used my avaible tools to predict that FLR's earnings were going to surprise to the upside and the market has not accounted for that fundamental change. After all, those big gaps are because the market is trying to catch up to the stocks fundamental realities. I could have played it safe and created a debit spread to hedge my cost, but it would have capped my gains at a limit net gain. Going short straddle is nice especially ahead of earnings with high IV, but if I knew nearly knew the direction, then why play a safe option strategy, when I can take advantage of the entire move.

Still, in the end, both strategies will work if played correctly.
 
Okay,

bought some directional trades here:

Keeping AZO calls, and still have 10 CRM June 70 calls.

Added:

10 ARD June 55 calls at $2.20

10 UPL June 95 calls at $2.50

Both are directional bought this morning according to more estimates that oil will move to $150 or higher in the next few months. Basically, these 2 trades are strong bullish speculation on the oil market. I will update when I close these positions. I expect to close them within a week. In fact, we could get some selling next after the Memorial day Holiday weekend. Good luck to all....and by the way, CRM reports on Wednesday after the market closes.

edit: CRM June 70 calls are at $1.60/$1.70 current IV: 53.28, expected IV after earnings is 45. So what I'm looking for in CRM on Thursday morning is price: $69, IV: 45. With those numbers my CRM June 70 calls should be a range of $3.10-$3.40, giving me about 100% in gains. good luck to all.
 
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