My option trades

Quote from babutime:

Agree with the sirens comment. Haha!!!

I draw these risk graphs in tos and drop the implied vol to simulate an after event drop and kaboom the profits seem juicy. Then when i paper trade the results Suck donkey balls.

Just don't get it. You'd expect the long dated options to not fall as much because theu dont have as much vol priced in... In fact because their skews are normal you'd excpect the option to rise... But like atticus said the returns aren't great..

I think ill see how selling straddles go...
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skew doesn't have anything to do with it. Even 1 year options have gamma. So if there is earnings move expected it will be priced as a decrease in implied vol. Since there is less gamma in a 1 year, the vega pnl will be less (as will the gamma loss) compared to a 1 month option. Unfortunately, to make the same amount of money, you will have to trade more of the longer dated contracts which adds other costs (bid/offer, etc).

You should be able to determine where vol will settle after earnings. If you can't do that, avoid trading earnings.
 
GOOG used to have a great upside skew. IIRC the 100-point OTM risk-reversal traded +3.00 to the call (can't recall R/R in vol-basis). You could sell the bull-straddle with LIBOR at 400bp and make a decent buck on the skew and the forward. I picked up 40 handles in one series in 4 months time over two reports.
 
Quote from atticus:

GOOG used to have a great upside skew. IIRC the 100-point OTM risk-reversal traded +3.00 to the call (can't recall R/R in vol-basis). You could sell the bull-straddle with LIBOR at 400bp and make a decent buck on the skew and the forward. I picked up 40 handles in one series in 4 months time over two reports.
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When was that? In 2005-2006? or in 2009 when you were selling the leaps? I haven't looked GOOG skew in a while.

AAPL used to have it in 2007-2008. Used to buy skew as a downside hedge. It's like that again...
 
Quote from newwurldmn:

When was that? In 2005-2006? or in 2009 when you were selling the leaps? I haven't looked GOOG skew in a while.

AAPL used to have it in 2007-2008. Used to buy skew as a downside hedge. It's like that again...
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I've done them as late at 2010, but yeah, it was probably earlier. There was a juicy one in 2008-9 as rates imploded. I recall the R/R was 300 over when GOOG was at $450-70/share.
 
Quote from atticus:

I've done them as late at 2010, but yeah, it was probably earlier. There was a juicy one in 2008-9 as rates imploded. I recall the R/R was 300 over when GOOG was at $450-70/share.
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Unfortunately I missed that. I remember in mid 2009, you would see upside index vol reset up as the market was rallying. Selling that GOOG would have been juicy.
 
Interesting reading your war stories on trading.


I´ve got enough on my plate to chew on for a few days and absorb. Doesn´t sound like from all the expertise, that there are any guarantees.

Did get the calendar in finally this Sunday on an old paper trading TOS account. Think I´ll leave it be and wait the week out and see what happens, rather than repeat the trade Monday in my cash account.

I´ve been thinking I should try a LEAP trade. Planning on a three month horizon and see what happens? Did it once two years ago with an heating oil company and it returned 80%. I thought that was great.

I was kind of wondering if a STRADDLE would work using LEAPS? Especially if you treated it like a range bound type trade, or in the case of GREEK style trading, selling off, or buying back on either side appropriately.
 
Quote from newwurldmn:

Unfortunately I missed that. I remember in mid 2009, you would see upside index vol reset up as the market was rallying. Selling that GOOG would have been juicy.
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I posted it here in r/t, IIRC. I'll try to find it.
 
 
Quote from newwurldmn:

skew doesn't have anything to do with it. Even 1 year options have gamma. So if there is earnings move expected it will be priced as a decrease in implied vol. Since there is less gamma in a 1 year, the vega pnl will be less (as will the gamma loss) compared to a 1 month option. Unfortunately, to make the same amount of money, you will have to trade more of the longer dated contracts which adds other costs (bid/offer, etc).

You should be able to determine where vol will settle after earnings. If you can't do that, avoid trading earnings.
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The only way I currently know of doing that is looking at the implied move and calculating the realized vol based on such a move as an estimate for where IV will fall to

Am I right in doing that?

Atticus previously said (in the case of a butterfly vs a straddle) that he'd trade less contracts (to get the same amount of risk exposure) with a leaps straddle vs a near term butterfly.

However, you're saying I need to sell more of long term contracts (is that correct?)

I know I'm missing something here. Could you guys' clarify that for me?

Oh and isnt vega PnL going to be greater for Leaps? vega is larger for further out expirations...

:confused:
 
Quote from atticus:

http://www.elitetrader.com/vb/showthread.php?s=&postid=1638666&highlight=goog+straddle#post1638666

http://www.elitetrader.com/vb/showthread.php?s=&postid=1721702&highlight=goog+straddle#post1721702

http://www.elitetrader.com/vb/showthread.php?s=&postid=1895452&highlight=goog+straddle#post1895452

http://www.elitetrader.com/vb/showthread.php?s=&postid=1895473&highlight=goog+straddle#post1895473
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Fascinating. I had no idea that the stock traded like that. The first time I ever traded GOOG in size was April 2008 earnings. I got the idea out of the Economist. Earnings priced 6% but there was a lot of controversey around their click rates and comscore data. Someone was going to be very wrong.
 
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