Options Prices after Earnings

[john demp]

I bought near money call options on TSLA knowing it would have good earning reports with IV at 150%. Stock went up 3% or $6 following earnings. Yet my call options lost 45%. All the ITM & OTM CALL option near the money lost on that day. All buyers of PUT or CALL options lost money that day.

Any reason why stock went up 3% yet options lost money? And how can I avoid this in the future?

Thanks.

 

[rmorse]

Vega risk. You need to expect the drop in implied vol after expected news. This is common.

 

[OTM-Options]

I bought near money call options on TSLA knowing it would have good earning reports with IV at 150%.

You never know what will happen after earnings. Stocks can go down on good earning reports or climb on poor earning reports - 20/20 hindsight analyst then kicks in and it all makes sense - until the next time.

Stock went up 3% or $6 following earnings. Yet my call options lost 45%. All the ITM & OTM CALL option near the money lost on that day. All buyers of PUT or CALL options lost money that day.

Any reason why stock went up 3% yet options lost money? And how can I avoid this in the future?

Thanks.

Options are much more expensive pre-earnings due to the uncertainty of what will happen after earnings, once earnings is past that risk is gone so the options can be priced cheaper, so if the stock doesn't move enough after earnings the options will go down in value. A 3% move on a stock like TSLA isn't enough, some stocks need a 10% move for the options to pay off.

 

[john demp]

I assume the MM will mark up the option pricing for that month when earning is expected to come out which will make the option pricier that particular month?

Thanks.

 

[rmorse]

The view that MM are "marking up" prices gives the impression that they can control prices.They price options based on expectations and supply/demand. The market players in general won't sell these options without being paid for their risk, but they also won't be the only buyers out there at higher prices. The best way to look at this is that market uncertainty created higher Ivols and premiums. When uncertainty passes, option prices reverts back to expectations of movement based on the new normal, whatever that is.

 

[prc117f]

You should read up on the greeks and understand how options are priced and how they react to different situations.

 

[prc117f]

I bought near money call options on TSLA knowing it would have good earning reports with IV at 150%. Stock went up 3% or $6 following earnings. Yet my call options lost 45%. All the ITM & OTM CALL option near the money lost on that day. All buyers of PUT or CALL options lost money that day.

Any reason why stock went up 3% yet options lost money? And how can I avoid this in the future?

Thanks.

Thats called IV collapse. Buying a near money call with an IV at 150 close to earnings is asking for a massive scalping. Yeah you will see a big collapse in the price of the option once earnings passed (UNLESS some black swan earnings event occurs)

 

[KiwiFi]

As a rule of thumb your 3% move is roughly a vol of (sqrt(252) or lets say 16) 48% so your 3% was no where enough of a move for a 150% vol option.

 

[john demp]

So why do some options have VEGA and some don't. Example GEVO reported earnings today -- IV =200%, float =9M, vega = 0, stock price =$5.18? Thanks.

 

[KiwiFi]

what is the strike of the option? The deeper out of the money, the less vega they have, also very short dated options will have lower vega. So if they are short dated deep ITM or OTM options then the vega could almost be zero (not they will never have zero but that might be a rounding).