option spread question

Quote from 1245:

You will benefit if the pricing in the market place in incorrect. If earnings produce a small move and you exit at the correct time, when ever that is. If the stock is very volatile up to and including earnings, and your short those options, then you're stuck with the next month and vol drops....not profitable.
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So... let's say earnings anounced after Oct12 expiration. So Nov becomes front month. Both Nov and Dec IV goes up. Nov IV spikes higher than Dec but Nov vega is much lower. I sell days before earnings while IV is still high in anticipation. Anything wrong with this scenario?
 
Quote from dolbo:

So... let's say earnings anounced after Oct12 expiration. So Nov becomes front month. Both Nov and Dec IV goes up. Nov IV spikes higher than Dec but Nov vega is much lower. I sell days before earnings while IV is still high in anticipation. Anything wrong with this scenario?
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No, nothing wrong if your strategy, which is betting a small move. I think the best time to enter a trade like that is within two days of earnings. At least that way you can know better which strikes you won't to include. This much in advance, the stock can be anywhere.
 
Quote from 1245:

No, nothing wrong if your strategy, which is betting a small move. I think the best time to enter a trade like that is within two days of earnings. At least that way you can know better which strikes you won't to include. This much in advance, the stock can be anywhere.
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Thank you. One more question, you mentioned that if VI goes down after earnings that this may be a losing trade if I hold it. Do you mean Dec12 VI may go to a lower level than it is now? Because I am thinking if VI spikes then goes back down to the current level that should be fine...

Also, VIX is currently close to all time low, VXAPL is about 30 which is also quite low. So I think it is unlikely that Nov12/Dec12 VI can sink much lower in November to hurt this trade. What do you think? I know anything could happen, but is my reasoning correct or I am way off in my estimates?
 
Quote from dolbo:

Thank you. One more question, you mentioned that if VI goes down after earnings that this may be a losing trade if I hold it. Do you mean Dec12 VI may go to a lower level than it is now? Because I am thinking if VI spikes then goes back down to the current level that should be fine...

Also, VIX is currently close to all time low, VXAPL is about 30 which is also quite low. So I think it is unlikely that Nov12/Dec12 VI can sink much lower in November to hurt this trade. What do you think? I know anything could happen, but is my reasoning correct or I am way off in my estimates?
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http://www.ivolatility.com/options.j?ticker=AAPL&R=0&top_lookup__is__sent=1

I think dec vol can get down 20 to 22 if your right and the stock is stable, and the market is stable. In the end, I have no clue if your right or wrong. I just think for this trade, you wait closer to earnings, then decide. Also, your using capital for a spread that is unlikely to change much over the next few weeks.

Good luck...
 
for me.. i've thought so many times with apple... sell a put credit spread... binary on a beat.. they usuually beat... its hard as hell predicting how well the pricing is right for earnings... the better move has been to trade directly after earnings .or. buy vol a week or two prior.. i'm going to start staying away from trying to price that actual move.. thats so freakin random
 
Quote from 1245:

SMB got involved with options because the options industry is still growing.
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Sorry. I don't know how this got here. I was responding to another thread.
 
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