How hard will I get crushed by this volatility crush?

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Hi, Im still new to trading and have a question regarding implied volatility.
I bought a 220 OCT NFLX call option a couple of days ago for the upcoming earnings. I already made a decent profit on them ~30%. Now my question is if 2moro the stock opens at 220 what will my option be worth after volatility crush. How can I calculate this myself, my broker does not provide the tools for that. Thanks
 
Our LVX software can help estimate that. You will still have to have a process to make that guess.

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I would start by looking at historicals of the crush post earnings announcement. You can create a whole science out of this trading method. Charting vol updrift then crush , charting straddles to determine optimum entry, straddle scalping AFTER the earnings if vol crush is too excessive bec oftentimes, the market over-adjusts, how many times stock has beaten, by how much. I am sure someone , somewhere is doing this bec this is road less traveled..why? a lot of work ! Good luck.
 
mushinseeker said:
I would start by looking at historicals of the crush post earnings announcement. You can create a whole science out of this trading method. Charting vol updrift then crush , charting straddles to determine optimum entry, straddle scalping AFTER the earnings if vol crush is too excessive bec oftentimes, the market over-adjusts, how many times stock has beaten, by how much. I am sure someone , somewhere is doing this bec this is road less traveled..why? a lot of work ! Good luck.
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Thanks for the info. Is there a site where I can check historic option prices for free. Like from NFLX last earnings date.My broker does not povide that.
 
Here's a fairly simple way to guesstimate an answer. Go to IVolatility (free sign up) and look at the one year implied volatility graph for NFLX. You can see the three previous quarterly IV expansion into earnings and their subsequent collapses after the release. Note the IV that they contracted to.

http://www.ivolatility.com/options.j?ticker=NFLX:NASDAQ&R=1&period=12&chart=2&vct=

Take that IV number and imput it into a pricing model (see below) and you will get your answer. Obviously, you are guessing what the post EA IV will be based on the past 3 EA's. You might consider using the range of the three previous quarterly collapses to determine an expected range for this EA.

http://www.ivolatility.com/calc/?ticker=SPX

A very loose way to corroborate this IV number is to look at what the current IV is for the far distant expirations since their premiums tend to be much more minimally affected by IV expansion (the nearest expiration after the EA is where the big bang for the buck occurs).

I've traded a lot of volatility plays on EAs. Some drop like a rock to where they're going to end up. In many cases, the IV drops in the AM but hasn't reached it's nadir, continuing to fade off toward early afternoon. The point? If your long position is profitable in the AM, unless you're riding a price momentum surge in your favor, consider exiting before further IV contraction takes away more long premium.
 
You do realize that you are holding a 90 vol option with 4 days to go? if the Vega does not get you, than the Theta will.

PS. My model gives a 12 vol decline for tomorrow morning
 
  • As of now the 220 calls still have some life in them.
  • With NFLX at 205 a $15.00+ move is possible in the next few days. Unlikely but possible.
  • Oct 2 to Oct 5 NFLX up $17.

Good luck OP.
 
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