EL! Bloomberg's algo is estimating DDS earnings to be on AUG 23rd!!!! I'm selling aug 17 and buying the back monthSummary: There is risk in this strategy.
I assume your subscribers are not told your approach has no risk at all? Risk here is managed by a lot of things but if a stock gaps more than expected I close the position and move on to the next one..
Also I do more calendars than straddles where risk is more controlled for me.
The secret to buying pre earnings straddles
- Thread starter TheBigShort
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I will hold off on DDS for now until it is clearer the date. There is an AUG 24 weekly as well right?
Summary: There is risk in this strategy.
I assume your subscribers are not told your approach has no risk at all? Risk here is managed by a lot of things but if a stock gaps more than expected I close the position and move on to the next one.
Also I do more calendars than straddles where risk is more controlled for me.
My approach of buying straddles before earnings has very low risk. Average loser is around 10% and it is very rare to lose more than 15-20% (happened I believe once in 2017 and once in 2018, and never more than 25%).
We have higher risk strategies as well, and the risks are always fully disclosed.
When you hold through earnings, you have no way to limit the loss if the stock gaps. The only way to control risk when holding through earnings is by limiting your position sizing and always assume a 100% loss.
But I agree that if I was forced to do it, I would do it with calendars, not naked straddles. With calendars your risk is at least limited to the debit you paid. With naked straddles (or strangles) you can easily lose few times the credit you got.
Yea the spreads are so wide tho yikes
I also have a calendar on UNIT who announced yesterday, not sure I posted it so cannot go back and look at pre and post vols... maybe you can check Biggie?
Kim's last post is what I mean by free(ish) gamma rent. IVTrader made a science out of this years ago. Alex u around? If you can chart a straddle, you can sense when it has stopped going down as it embarks on the "IV ramp"
Yes. I had an article on Seeking Alpha a while ago:
The key is to identify stocks where straddles keep value well, and enter at favorable prices.
Like we did with SYY this cycle:
Closed two iterations of straddles for 11-13% each (total gain of 24%, with very low risk).
Kim.. been a while since I looked at this. So this only comes into play during earnings season which means what like 4 months of the year you got something to do? Your article says it is possible 10% per month.. don't you mean 10% per month for the 4 months you are engaged in this earnings strategy? Thanks in advance.
Not necessarily.
We have the biggest number of earnings releases during the first month of each cycle, but it doesn't mean rest of the time there are no earnings. This month (which is the second month of the quarter) we already traded CSCO, SYY, HD, LOW, TGT, NVDA, PKNG, NTES, HPQ, TSN, WMT and more. Third month of each quarter usually has NKE, BUD, MU, FDX, AVGO, ULTA, TIF and more. In fact, this year May was our most active month, we closed 18 trades for an overall portfolio gain of 19.1%.
I was referring to closing it before earnings.