Straddle on Earning day

Vijay don't give up on Options. They're the best risk/reward leveraged financial instrument in the world.

Options : Limited risk, Unlimited profits, as of today, much higher investor interest than Futures (read why Scottrade doesn't offer Futures trading per their VP I.e. not enough demand)

Futures : Unlimited risk, Unlimited profits. Open interest on popular underlyings about a 1/10th of Options. Look for yourself on CBOE and CME

Millenials and younger investors today are into Options. Older investors stick to the Futures mantra.
 
OptionGuru said:
"IV crush" is a moot point for traders that buy straddles/strangles before earnings, 100% of buyers are anticipating a big enough move on the underlying to offset the debit paid for the options. - the OP even indicated that he was "hoping to ride the earning price movement".




:)
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What he hoped for is irrelevant. IV crush implies that when he bought the straddle he paid a relatively high amount due to inflated IV which means he would need an even bigger move than normal to override the IV crush you know is coming.

When earnings comes out and IV drops sharply you can still lose money if stock moves because more premium gets sucked ou on vega than you earn on delta. High IV purchases means you are overpaying relatively on both the call and put side so if it moves in one direction or moves barely at all, you lose a ton of premium which is why he lost so much on his trade.

I have sold straddles on GOOG before earnings to see if jump 50 points and I still made money due to vol crush.

For an option guru you are not up to date on some of the basics.
 
optioncoach, are you telling Vijay in this case he should sell straddle instead? But without superior knowledge, his guess was 50/50 either way so in general, he would have lost money due to bid/ask and commissions?
 
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ironchef said:
optioncoach, are you telling Vijay in this case he should sell straddle instead? But without superior knowledge, his guess was 50/50 either way so in general, he would have lose money due to bid/ask and commissions?
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  • Depends on his view of the underlying.
  • Sell straddles if you think the underlying will under-preform the premium collected.
  • Buy straddles if you think the underlying will over-preform the debit paid.



:)
 
ironchef said:
optioncoach, are you telling Vijay in this case he should sell straddle instead? But without superior knowledge, his guess was 50/50 either way so in general, he would have lost money due to bid/ask and commissions?
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No you cannot approach this with a one size fits all approach. That is why I say simply buying the straddle before earning without any consideration to implied volatility or studying past movements of the stock around earnings does turn it into a 75/25 trade with 75% chance of you losing in my opinion. The example I cited when I sold GOOG is because I personally felt the IV was over inflated for the move I personally expected post earnings and this the reason for that trade.

but there is no good vanilla strategy for simply buying or selling a straddle on earning without deeper level of analysis.
 
Funny how the longer you spend studying the markets day in and day out (and I mean years) the more intuitive you get about what direction a security will take. Everytime I've ignored my guy feeling and had a sleepless night, I've lost money.
 
TradeCat said:
Funny how the longer you spend studying the markets day in and day out (and I mean years) the more intuitive you get about what direction a security will take. Everytime I've ignored my guy feeling and had a sleepless night, I've lost money.
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Actually very good point. When I traded options on stocks I wasn't familiar with using screeners from my brokerage, or trading indices, things usually ended badly.
 
Did a straddle this week on earnings. Stupid! Made a lot on the put, lost even more on the call. I used to think straddles/strangles were the holy grail. Most days, they're like Chinese take-out.
 
TradeCat said:
Did a straddle this week on earnings. Stupid! Made a lot on the put, lost even more on the call.
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  • Stock?
  • Strikes?
  • Expiry?

TradeCat said:
I used to think straddles/strangles were the holy grail.
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That would make you the only trader to think so highly of straddles/strangles.


TradeCat said:
Most days, they're like Chinese take-out.
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Do you mean that an hour after you open a straddle/strangle trade you feel like opening another?




:)
 
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