Trading the Volatility Smile on Earnings

[VolSkewTrader]

Belwo are past volatility curves right before earnings announcements for Google and Amazon. Strategically placed OTM butterflies looked like a screaming buy. But both stock prices moved so much in one direction that almost any long butterfly was an immediate loser....but don't compare to the losses of selling the OTM strangle naked.

Being long the super expensive ATM strike IVS and selling the cheap OTM wing IVs (short the fly) was actually a winning trade.

 

[Tony Optionaro]

(far OTM to eliminate Gamma Risk)

To eliminate Gamma Risk by selling FOTM? That's literally taking huge gamma risk, sell ATM if you want to define Gamma risk.. not OTM. That's literally how every new premium seller blows up.

 

[Atikon]

Belwo are past volatility curves right before earnings announcements for Google and Amazon. Strategically placed OTM butterflies looked like a screaming buy. But both stock prices moved so much in one direction that almost any long butterfly was an immediate loser....but don't compare to the losses of selling the OTM strangle naked.

Being long the super expensive ATM strike IVS and selling the cheap OTM wing IVs (short the fly) was actually a winning trade.

What program do you use to look at historical IV?

 

[VolSkewTrader]

What program do you use to look at historical IV?

In the past I've used IVolatility for EOD and Intraday IV market data. You can use OptionMetrics or CBOE's historicial data services too. It can be expensive so beware. Prices can vary and it's cheapest to present yourself as a retail individual, vs a trader with a prop group, where they will charge you professional/institutional rates.

I currently record my own IV market data with a proprietary curve fitter for optimal and precise IV levels. The historical data services don't have a data filtering engine that smooths out jagged smiles and pricing anomalies on the IV surface. So their IV data is not as accurate some would like (like myself), but good enough for most purposes.

 

[PoopyDeek]

Belwo are past volatility curves right before earnings announcements for Google and Amazon. Strategically placed OTM butterflies looked like a screaming buy. But both stock prices moved so much in one direction that almost any long butterfly was an immediate loser....but don't compare to the losses of selling the OTM strangle naked.

Being long the super expensive ATM strike IVS and selling the cheap OTM wing IVs (short the fly) was actually a winning trade.

The 25D RR for May15 vol in GOOGL is seven handles in vol favoring the put. Ascending strike vols; 47%, 42% (ATM), 40%. It took me 15 seconds and one ticker. It's still tail heavy. GOOGL must be an outlier lol.

 

[lightfightercap]

@Atikon You wont get fucked buying back the spreads if they're narrow enough, only if the wings are low volume and very wide. Also, I think the stocks you're looking for are not AMZN and GOOG with massive IV collapses. Other non-tech verticals have a smaller IV collapse, but the majority of your profit and isn't from vol skew anyway, its from the price failing to move as much as priced in. Also buying these trades back at open is a nightmare, I would consider looking for stocks with elastic properties that will move back towards yesterday's close/ your strikes later in the day.

 

[Atikon]

In the past I've used IVolatility for EOD and Intraday IV market data. You can use OptionMetrics or CBOE's historicial data services too. It can be expensive so beware. Prices can vary and it's cheapest to present yourself as a retail individual, vs a trader with a prop group, where they will charge you professional/institutional rates.

I currently record my own IV market data with a proprietary curve fitter for optimal and precise IV levels. The historical data services don't have a data filtering engine that smooths out jagged smiles and pricing anomalies on the IV surface. So their IV data is not as accurate some would like (like myself), but good enough for most purposes.

Thank you! I will request quotes. CBOE came out to about 3,5k per ticker for EOD Data, If the other quote similar, I will have to stick to One-Size-Fits-All Backtester for now :/ at least untill I find a trading group that buys and share data

 

[lightfightercap]

Thank you! I will request quotes. CBOE came out to about 3,5k per ticker for EOD Data, If the other quote similar, I will have to stick to One-Size-Fits-All Backtester for now :/ at least untill I find a trading group that buys and share data

You can also use TOS for backtesting, On Demand feature is very helpful, second by second IV/price data. Fills are optimistic but you can subtract slippage

 

[VolSkewTrader]

Thank you! I will request quotes. CBOE came out to about 3,5k per ticker for EOD Data, If the other quote similar, I will have to stick to One-Size-Fits-All Backtester for now :/ at least untill I find a trading group that buys and share data

You're welcome. If you could split/share the data with another trader or prop group then that's even better. Good luck!

 

[VolSkewTrader]

The 25D RR for May15 vol in GOOGL is seven handles in vol favoring the put. Ascending strike vols; 47%, 42% (ATM), 40%. It took me 15 seconds and one ticker. It's still tail heavy. GOOGL must be an outlier lol.

Those are old (couple of years ago) pre-earnings vol curves of GOOGL and AMZN.