Is selling options before earning Good Strategy?

[destriero]

No actually I'm done here. When someone quotes my articles and takes them completely out of context, something tells me he is not interested in facts, only bashing. He won't let the facts to confuse him.

As for the hedge fund, we never claimed that those results can be replicated in multi million dollar accounts. Our model portfolio is $10k and our recommended portfolio size is $10-100k.

$0 AUM.

The Lorintine "LC Diversified" Fund was up 13% in 2017. The Shady Options Fund has $0 AUM.

The Shady Options Fund's prospectus shows LC Diversified. IOW, the Shady Options Fund IS LC Diversified: http://www.lorintine.com/wp-content/uploads/2018/06/PPM_01.22.18.pdf

Now you know why there are no EOY reports other than 2015.

 

[DD2018]

When the event vol is 50 days before the event, it is diluted by the daily volatility (50 days), when there is only 1 day left and the expected move is 10% you will see Very high volatility. The "IV" was always there. So your homework for tonight is to learn how to strip the event vol and the ambient vol (the vol leading into earnings) from the options price. And look at that Kim, I didn't even charge you a dime.

While I'm following your explanation here, it brings up a question. Why do people then recommend long calendars into earnings? I believe I saw a couple of those in your calendar thread. Following your explanation, since the earnings IV is already priced into the back month (earnings) options, how do we benefit from a long calendar (other than the short gamma/long theta on the front month)? There must be some kind of "IV ramp" still in effect right?

The point about the greater fool theory I think is good. You will always have (especially for certain stocks) speculators willing to bid up the price of options before earnings. Furthermore, I think the institutional guys don't really care if the options are overpriced because they are just buying for the insurance. Both of these will lead to higher IV as we approach earnings announcements.

 

[TheBigShort]

Why do people then recommend long calendars into earnings?

If we are long a calendar where the front expiration is before the earnings then we are long the jump volatility. We are short the "usually" over priced ambient volatility and we are long the jump vol. If the jump vol is to high then a calendar will not be any good.

There must be some kind of "IV ramp" still in effect right

The IV ramp is just the earnings event getting closer and closer to expiration. Remember vol is synthetic time. If we have less time with the same expected move then we MUST have higher vol.

The point about the greater fool theory I think is good. You will always have (especially for certain stocks) speculators willing to bid up the price of options before earnings.

Let me explain why this is wrong. A speculator in theory wants to make money. If he knows if he can buy "before the vol ramp" he will. The markets are VERY smart. Something like the "vol ramp alpha" will not exist even in a weak form efficient market. Hedgers might be willing to over pay for there insurance, but once it gets to high, people will be willing to sell driving the price back down. Your alpha will come from your ability to price the future implied move + the volatility leading up into the numbers.

To really understand this. Look at a stock that has its earnings in 2 weeks. Make sure earnings are CONFIRMED. Find out what the implied move is and what the ambient volatility is. In order to do this you will only need basic math and a calculator and pen. If you want to actually extract alpha. You will need access to historical data both implied moves and realized moves and you will need to learn some type of language to screen for them. I have access to data from Bloomberg, code using R and have put a lot of time into it. Even then I can only squeeze out a pinch of alpha. I'm not saying you can't do better then me, you most certainly could. Just make sure you have the tools or are willing to learn the tools before you venture into this.