Timing a non-directional earnings play

[TrustyJules]

Plus: it's fun and I do like to gamble occasionally as well! Cheers!

No arguing with that - I wont say I never did it because I have and more often than not came out ahead. What I couldnt see was a way to win consistently.

As regards using the volatility increase, this is quite simple. You buy between 3-14 days ahead a 40/50 delta call. Generally right before the close ahead of earnings volatility will peak and you can sell and come out ahead without having to gamble on the outcome.

On selling ICs or straddles - it would be interesting to see what happens if you do it consistently for high vol. stocks like the FANGS. On the one hand they are risky but on the other you spread your risk over a number of them and hence the average may come out ahead. I havent got access to historical option data but it could be worth looking at.

 

[kevagonia]

No arguing with that - I wont say I never did it because I have and more often than not came out ahead. What I couldnt see was a way to win consistently.

As regards using the volatility increase, this is quite simple. You buy between 3-14 days ahead a 40/50 delta call. Generally right before the close ahead of earnings volatility will peak and you can sell and come out ahead without having to gamble on the outcome.

On selling ICs or straddles - it would be interesting to see what happens if you do it consistently for high vol. stocks like the FANGS. On the one hand they are risky but on the other you spread your risk over a number of them and hence the average may come out ahead. I havent got access to historical option data but it could be worth looking at.

Yes. Provided the prices are good for entry, I'll let you know how that works out this quarter. I keep my sizing small for my small account and don't participate in some of these pricier deals. I'll look into the strategy above, thanks for the tip! I should have probably held on to ADBE longer, but it started to misbahave so I took my money and split. I'll probably monkey with ORCL next week. May be too late for 40/50 delta call but I'll check.

-K

 

[kevagonia]

Yes. Provided the prices are good for entry, I'll let you know how that works out this quarter. I keep my sizing small for my small account and don't participate in some of these pricier deals. I'll look into the strategy above, thanks for the tip! I should have probably held on to ADBE longer, but it started to misbahave so I took my money and split. I'll probably monkey with ORCL next week. May be too late for 40/50 delta call but I'll check. I would have had to be five days ahead of ADBE earnings to score with this.

-K

 

[spindr0]

Long straddles and strangles for an EA are really problematic because you are buying two legs that are going to collapse when IV contracts plus you're going to lose on the other leg when price moves in the opposite direction. That's an awful lot of lost premium to overcome and requires a sizable share price move.

IV can start rising as much as a month before the EA so if inclined to be long, it makes more sense to buy the combo as much as 2-3 weeks out. Rising IV will offset some of the decay and price movement may make the combo profitable even before the EA.. As the EA nears, either close out or create an IC or Butterfly by selling inflated wings.

Behind door # 3, do same series or diagonal IC-s and Butterflies. Selling overpriced wings will help to offset what you're overpaying for the body.

Behind the curtain is a specific play recommended by the tastytrade guys. If you like a stock at a certain price, sell what they call a Jade Lizard. Where'd they get that name?? Sell an OTM put as well as an OTM bearish call spread where the put premium at least equals the spread risk. Worst case upside scenario is you lose nothing. Worst case downside scenario is that you acquire your stock at the OTM strike less the two credit premiums. Best case is in the middle where you keep both premiums.

 

[iprome]

IV can start rising as much as a month before the EA so if inclined to be long, it makes more sense to buy the combo as much as 2-3 weeks out. Rising IV will offset some of the decay and price movement may make the combo profitable even before the EA.. As the EA nears, either close out or create an IC or Butterfly by selling inflated wings.

IV will rise when EA approaches, but options prices may not, as IV is annualized over DTE. Markets are so efficient that such "edge" simply does not exist.

 

[kevagonia]

Long straddles and strangles for an EA are really problematic because you are buying two legs that are going to collapse when IV contracts plus you're going to lose on the other leg when price moves in the opposite direction. That's an awful lot of lost premium to overcome and requires a sizable share price move.

IV can start rising as much as a month before the EA so if inclined to be long, it makes more sense to buy the combo as much as 2-3 weeks out. Rising IV will offset some of the decay and price movement may make the combo profitable even before the EA.. As the EA nears, either close out or create an IC or Butterfly by selling inflated wings.

Behind door # 3, do same series or diagonal IC-s and Butterflies. Selling overpriced wings will help to offset what you're overpaying for the body.

Behind the curtain is a specific play recommended by the tastytrade guys. If you like a stock at a certain price, sell what they call a Jade Lizard. Where'd they get that name?? Sell an OTM put as well as an OTM bearish call spread where the put premium at least equals the spread risk. Worst case upside scenario is you lose nothing. Worst case downside scenario is that you acquire your stock at the OTM strike less the two credit premiums. Best case is in the middle where you keep both premiums.

LIZ and JNY came up with that name on a whim I think...

-K

 

[spindr0]

IV will rise when EA approaches, but options prices may not, as IV is annualized over DTE. Markets are so efficient that such "edge" simply does not exist.

As I said, "Rising IV will offset *SOME* of the decay and price movement *MAY* make the combo profitable even before the EA." If that rising IV only offsets *SOME* of the decay then the two long option prices will obviously decline.

Who suggested that there's an edge in this? The underlying must still cooperate and make enough of a move to offset that net decline from decay.

 

[spindr0]

LIZ and JNY came up with that name on a whim I think...

I would have gone with something more recognizable such as Robert Redford in "Three Legs of a Condor"

 

[TrustyJules]

IV will rise when EA approaches, but options prices may not, as IV is annualized over DTE. Markets are so efficient that such "edge" simply does not exist.

This statement is inherently contradictory. IV is derived from option prices and vice versa, they are communicating vats; all other variables being equal. With a stable shareprice the main reason you see no change in option prices is because of theta, most strategies using earnings are relatively short termed options. These have high theta which in the run-up to the earnings event are compensated by higher IV. As the IV collapses all of that flows out of the option.

 

[OptionsOptionsOptions]

As the IV collapses all of that flows out of the option.

Thank you Captain Obvious.