ROKU trade ideas?

[spindr0]

Here are some more random thoughts.

The position is a diagonalized butterfly or iron condor, possibly unbalanced. I'd set up multiple ways of entry. For the iron condor:

(1) 4 legged combo order
(2) Two strangles (body and wings)
(3) Two diagonal spreads

While I did scores of these, perhaps even more, I never had much luck getting a good fill on a 4 legged combo order (say at or better than the midpoint). So most of the time, I legged in via (2). Work the combo with largest total B/A spread for two legs. If selling the short legs first bothers you, work the wings.

Or work the diagonal with the larger B/A spread and then be willing to execute the other side at the market.

Another reason to set it up both ways [ (2) and (3) ] is that it's not uncommon to see the at the market price of the two strangles cheaper or more valuable than the two diagonal entry because others may be looking for price improvement on one leg (either strangle or either diagonal). Hope this makes sense.

I found that the best entry was to fill the combos and then buy the extra legs on the wings. Legging in was always an adventure.

 

[.sigma]

A bit more seriously: ROKU is crazy volatile. Based on what it's been doing for the past month, I'd look at buying a straddle. I'm one of those people who jumps out of perfectly good airplanes for fun, but those 5SD+ moves are nuts.

I thrive of six sigma moves ;p

But yeah $ROKU YTD return is amazing!

 

[.sigma]

You've gotta have a set of stones to pay 90+ vols for a straddle that's on the way to 50 with the EA.

You're a better man than I am, Gunga Din.

I've always struggled wrapping my head around this way of thinking.

So you wouldn't buy a straddle at 90vol because why?? Because this premium is expensive because of high iV? I'm curious... because as you know low vol begets low vol, and high vol begets high vol..

So if you buy high IV, that IV will move. It's contradicting almost.
Also personally I've seen some success on long straddles a week before an earnings event.

But personally I don't do long straddles much, I trade the earnings event moreso than pre/post.

 

[spindr0]

I've always struggled wrapping my head around this way of thinking.

So you wouldn't buy a straddle at 90vol because why?? Because this premium is expensive because of high iV? I'm curious... because as you know low vol begets low vol, and high vol begets high vol..

So if you buy high IV, that IV will move. It's contradicting almost. Also personally I've seen some success on long straddles a week before an earnings event.

After the last EA, ROKU's average implied volatility dropped 40 BPs. In reality, the near expiration dropped more. Let's go with 40 BP.

Suppose this morning was the EA. ROKU's ATM long straddle for this week costs about $8 (yesterday's close). With a 40 BP contraction, half of that premium is gone after the EA. With a delta of about .50 on either side of the straddle, on an overnight basis you'll need a 7+ point move in either direction just to break even (8 pts at expiration).

I'd rather be on the sell side or buy the straddle and sell before the EA or just trade the underlying the moment the EA occurs. Swimming upstream against a 50% loss of premium isn't my cup of tea. If you like such set ups, go for it.

 

[tally2019]

Here are some more random thoughts.

The position is a diagonalized butterfly or iron condor, possibly unbalanced. I'd set up multiple ways of entry. For the iron condor:

(1) 4 legged combo order
(2) Two strangles (body and wings)
(3) Two diagonal spreads

While I did scores of these, perhaps even more, I never had much luck getting a good fill on a 4 legged combo order (say at or better than the midpoint). So most of the time, I legged in via (2). Work the combo with largest total B/A spread for two legs. If selling the short legs first bothers you, work the wings.

Or work the diagonal with the larger B/A spread and then be willing to execute the other side at the market.

Another reason to set it up both ways [ (2) and (3) ] is that it's not uncommon to see the at the market price of the two strangles cheaper or more valuable than the two diagonal entry because others may be looking for price improvement on one leg (either strangle or either diagonal). Hope this makes sense.

I found that the best entry was to fill the combos and then buy the extra legs on the wings. Legging in was always an adventure.

Thanks spindr0, for those random thoughts. I appreciate you sharing your execution insights as I'm sure they were derived from many frustrating trial & errors of your own!

 

[spindr0]

You're welcome tally2019. Every way that you can get a better fill really adds up. Even a mere nickel or dime.

FWIW, XLNX was about $93 near the close. The ATM straddle cost $8 and I bet that it will be worth should be less than 1/2 that in the morning, breaking even outside of 85-101. For the past two EA's it was a good bet. So far today, after the EA, not a good one since XLNX didn't move much.

If you have the stones to trade these then "Well thenMisterMr, you're a better man than I" (The Yardbirds)

 

[.sigma]

I'd rather be on the sell side or buy the straddle and sell before the EA or just trade the underlying the moment the EA occurs. Swimming upstream against a 50% loss of premium isn't my cup of tea. If you like such set ups, go for it.

I agree! This is a great example.

I was gearing more towards long staddles in high IV PRIOR to the event. Liquidate beforehand!

Also if an underlying has a similar scenario as you presented I'd most likely sell that premium into the event. Especially studying that underlyings statistics for the past earnings moves.