Riskarb's combo to fly conversion journal

riskarb · Apr 24, 2006

Quote from mantenar:

Is anyone playing ISRG . Earrning on 4/27. IV is at 69%. I am expecting IV to drop to 40%. History indicates that the stock moves up a little after earnings report.

Straddle 105 call/put - 16.00

Last quarter the atm straddle was trading at $25 the day before earnings. Stock dropped >$18 points on the release.

I think this report will be less volatile, however. I would play it slightly bullish.

knocks420 · Apr 24, 2006

Quote from riskarb:

Yeah Knocks, SLAB was a nice one. Good thing you converted in lieu of holding one more day.

Thanks guys. I sold the following as well:

NTRI 50 straddle @ 7.70
IV = 70%
Earnings came out AH, stock gapped +$13-$14

This will probably be a good example for worse case scenario for this strategy. Huge gap before protective wings are placed. It will be interesting to see what happens tomorrow but unfortunately I will be in NYC for an interview. Open to suggestions for adjustments, the most prudent thing seems to be to close for a loss.

btw, these are paper trades only.

RichardRimes · Apr 25, 2006

still a nice trade...good luck on your interview!

cnms2 · Apr 25, 2006

You should've already had a plan for any possible outcome before opening your position.

Good luck!

Quote from knocks420:

Thanks guys. I sold the following as well:

NTRI 50 straddle @ 7.70
IV = 70%
Earnings came out AH, stock gapped +$13-$14

This will probably be a good example for worse case scenario for this strategy. Huge gap before protective wings are placed. It will be interesting to see what happens tomorrow but unfortunately I will be in NYC for an interview. Open to suggestions for adjustments, the most prudent thing seems to be to close for a loss.

btw, these are paper trades only.

mantenar · Apr 25, 2006

The earnings were released in Mar. This current IV is 75% . They announced stock split and it will be effective on May 16th

Stock is at 66
Straddle 70 is at $11.00

From trending

Most Overpriced Puts:

Titanium Metals Corp. (NYSE:TIE - News) May 60. TIE's PowerRating is 2

How can we play this

riskarb · Apr 25, 2006

Quote from mantenar:

The earnings were released in Mar. This current IV is 75% . They announced stock split and it will be effective on May 16th

Stock is at 66
Straddle 70 is at $11.00

From trending

Most Overpriced Puts:

Titanium Metals Corp. (NYSE:TIE - News) May 60. TIE's PowerRating is 2

How can we play this

There is negligible skew in the 60s. I think TIE will beat soundly. The 60 combo is trading $1.00 over the 70 combo, so there is no incentive to short those deltas. I would probably take a shot at the May 70 straddle. I will be selling some back month 70s.

skanan · Apr 25, 2006

Quote from riskarb:

There is negligible skew in the 60s. I think TIE will beat soundly. The 60 combo is trading $1.00 over the 70 combo, so there is no incentive to short those deltas. I would probably take a shot at the May 70 straddle. I will be selling some back month 70s.

Why do you sell back month instead of front month (May) ?

Thanks,
-Nick

riskarb · Apr 25, 2006

Quote from skanan:

Why do you sell back month instead of front month (May) ?

Thanks,
-Nick

Front months[back] win or lose from gamma[vega]. There is simply more vega sensitivity in the back months.

riskarb · Apr 25, 2006

Quote from riskarb:

There is negligible skew in the 60s. I think TIE will beat soundly. The 60 combo is trading $1.00 over the 70 combo, so there is no incentive to short those deltas. I would probably take a shot at the May 70 straddle. I will be selling some back month 70s.

I missed the mention of March earnings. I doubt I will play TIE right now, unless the vols are compelling.

RichardRimes · Apr 25, 2006

riskarb did you play CME earnings? I threw on a Bear call CS last nite 500/510 for a 4.05 credit....now I'm thinking of doing a put CS ...but then thought what about covert to B-fly by buying 490/500....I'd love your thoughts on doing the IC vs the B-fly...