Options strategies per certain criteria

[jgiasi]

Hello.

I am looking for recommended options strategies given the following parameters:

1) IV near the high of its 52 week range.
2) Decent spread between the high and low IV over a 52 week period.
2) Upcoming event, such as an earnings announcement.
3) No perceived idea on which way the underlying will move.
4) Desire for a net credit or a small net debit.

Can anyone recommend some options strategies to exploit the above conditions.

Thanks, jennie

 

[MTE]

Quote from jgiasi:

Hello.

I am looking for recommended options strategies given the following parameters:

1) IV near the high of its 52 week range.
2) Decent spread between the high and low IV over a 52 week period.
2) Upcoming event, such as an earnings announcement.
3) No perceived idea on which way the underlying will move.
4) Desire for a net credit or a small net debit.

Can anyone recommend some options strategies to exploit the above conditions.

Thanks, jennie

That's the usual situation before some significant announcement, like earnings, and there's no easy way to play this.

Buying a straddle is essentially betting that the market has underpriced the straddle, i.e. that the realized volatility will be higher than implied and vice versa for selling a straddle. You can try a double diagonal or a straddle/strangle swap. That is, selling the front-month straddle/strangle and buying a back-month wider strangle. That would be a bet that the stock is not gonna move more than the market expects.

 

[IV_Trader]

Quote from MTE:

That's the usual situation before some significant announcement, like earnings, and there's no easy way to play this.

Buying a straddle is essentially betting that the market has underpriced the straddle, i.e. that the realized volatility will be higher than implied and vice versa for selling a straddle. You can try a double diagonal or a straddle/strangle swap. That is, selling the front-month straddle/strangle and buying a back-month wider strangle. That would be a bet that the stock is not gonna move more than the market expects.

MTE , no way that combo swap ( 4 legs) can make money for retail trader , even if price going nowhere and vols collapsing.

 

[MajorUrsa]

I would say that selling a calendar (short the back month) is the most obvious in a case like this. IV will probably drop after the news and a big move would squeeze out the time-value too. The frontmonth is the hedge.
BTW, doing this in two direction, as sort a diagonal butterfly, is not useful; the way it reacts is exactly the same as doing only one side.

Ursa..

 

[IV_Trader]

Quote from MajorUrsa:

I would say that selling a calendar (short the back month) is the most obvious in a case like this. IV will probably drop after the news and a big move would squeeze out the time-value too. The frontmonth is the hedge.
BTW, doing this in two direction, as sort a diagonal butterfly, is not useful; the way it reacts is exactly the same as doing only one side.

Ursa..

true , reverse calendar should be done only one side : via puts. If you have access to data , check out today's JOYG reverse results ; puts did better than calls .

 

[riskarb]

Quote from IV_Trader:

MTE , no way that combo swap ( 4 legs) can make money for retail trader , even if price going nowhere and vols collapsing.

It earns a few bucks if it converges to the short put strike at expiration. If vols rally a bit you can see a double. But all in all, not a great transaction.

 

[IV_Trader]

Quote from riskarb:

It earns a few bucks if it converges to the short put strike at expiration. If vols rally a bit you can see a double. But all in all, not a great transaction.

Risk , MTE was describing ( I think) a vols crash scenario with no/little change in price

 

[riskarb]

Quote from IV_Trader:

Risk , MTE was describing ( I think) a vols crash scenario with no/little change in price

Right, understood. I was mentioning a double if vols rose. Position can still be fairly profitable into a vol drop if it pins to one of the strikes. Not very likely, however.

 

[MTE]

I agree, a far from perfect trade, but may be worth a try, at least for educational purpose. Personally, I'd just pick direction.