Quote from Georgi90:
Hi everyone
what you think for that trade
buy WMT Dec10 55 call
sell WMT Nov10 55 call
WMT IV30 - 18
on 16 they report earnings, and i expect volatility curve to move in my favor, also its time spread, without underlying moves i win too
I would think a long calendar spread would be a good trade in an environment of increasing IV, which is common approaching the quarterly earnings announcement. Immediately following the announcement, IV often decreases sharply. Thus, you could do a long calendar in the weeks approaching earnings, then liquidate and do a short calendar (giving you short vega, long gamma) right before the announcement to profit off the vol. crush and any big move in the underlier. The main thing is to not hold the long calendar into earnings. You've got to know exactly when the report is coming out. If before the open, put on the short calendar by the close the day before. Just recently, I held my long calendar in PFE through earnings day and got burned. Vol had spiked the day before, making the trade quite profitable, but following earnings, all that lovely IV evaporated, and with it my paper profits from the day before. How could I have forgotten to close my long vol. trade before earnings? I think I thought the report was coming after the close, not before the open.