PCLN straddle

There is another way to play earnings:

Buy a straddle or a strangle 2-5 days before the release and sell it any time if the position if up >10% or on the last day before the release.

The win/loss ratio is about 65/35 while the average size of the winners and losers is close to 10% of the position size. So, it's 1:1 R/R with a probability of win >60%.

That said, the actual losses tend to cluster around 0-5% and 15-25% while the winners are distributed more equally around 10% mark with a few outliers.
 
Quote from rocky_raccoon:

There is another way to play earnings:

Buy a straddle or a strangle 2-5 days before the release and sell it any time if the position if up >10% or on the last day before the release.

The win/loss ratio is about 65/35 while the average size of the winners and losers is close to 10% of the position size. So, it's 1:1 R/R with a probability of win >60%.

That said, the actual losses tend to cluster around 0-5% and 15-25% while the winners are distributed more equally around 10% mark with a few outliers.
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This strategy may be getting too crowded. Jeff Augen wrote about this strategy in one of his books. Steadyoptions.com also exclusively uses this strategy.
 
Quote from johnshepherd59:

This strategy may be getting too crowded. Jeff Augen wrote about this strategy in one of his books. Steadyoptions.com also exclusively uses this strategy.
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Maybe so but it works so far. There is always room for different entries as the underling moves and everyone will not be able to jump on the same trade at the same time.
 
Quote from rocky_raccoon:

Maybe so but it works so far. There is always room for different entries as the underling moves and everyone will not be able to jump on the same trade at the same time.
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So how do you determine when to enter? I have been moderately successful with this strategy, but I don't think I have a 65% hit rate.
 
Quote from johnshepherd59:

So how do you determine when to enter? I have been moderately successful with this strategy, but I don't think I have a 65% hit rate.
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A general rule is 2-5 days before the release: 2 for weeklies; up to 5 for monthly options. It helps if the overall market is quiet on that day or VIX is down. If not, I may wait for another day.

I prefer that a strangle or straddle has some small delta at the time I enter my order. At first, I enter a limit order below the current bid price in the area where the price of a combo will likely to go if the UL moves.
Then I check to see if there is a fill and if not move my limit price or choose different strikes.

E.g., if XYZ is currently at 30.10 and may move higher, I choose 30/31 strangle which should become cheapest when XYZ crosses 30.50.

If XYZ is on the down trend, then I choose 30 straddle or 29/30 strangle placing my limit price to where the price of the combo should go when it's delta becomes 0.
 
nice.. when i first started trading options.. i got hooked on earnings and quickly realized it made sense to trade the pre earnings vol run up.. but i just never did.. good for you... i'm so curious about what the post earnings perspective on vol and trading is.
 
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