Well, when it comes to IV crash, I believe calendars are much better choice and strangles are very ineffective use of capital. Plus the risk is much much higher - imagine tomorrow they announce acquisition and the stock jumps 100 points? Not likely but possible - refer to LNKD case where some poor guy did iron condor just before Microsoft acquisition - http://www.reuters.com/article/us-linkedin-m-a-microsoft-options-idUSKCN0YZ2HO (and his risk was limited).
TSLA earnings Wednesday August 03, after the bell. PCLN August 04.
- Thread starter OptionGuru
- Start date
Sold...both of you.
Short Aug 5 220/235 strangle @ $7.90.
- Good trade atrp2biz.
- Short strangles during earnings definitely isn't my cup of tea.
- TSLA trading flat as of now ($226.24) - very rare to see that for a tech company after earnings.
- My long 250.00 calls will expire worthless.
Sold...both of you.
Short Aug 5 220/235 strangle @ $7.90.
Closed the strangle. As I was legging out, my 3-year old powered down my computer. I logged back in through the iPad and I ended up having two buy orders on the call side.
Sure, I could have made more with a calendar, but the alligator tears I was shedding while closing the position reminded me of this scene.
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There is absolutely no advantage to strangle over calendar when trading IV crash. NONE. Only disadvantages: much lower ROM, unlimited risk, inefficient use of margin etc. The calendar is up 150% currently while strangle is only 15%.
That said, TSLA is one of the worst candidates to trade earnings. The moves are very inconsistent, so no matter if you buy or sell premium, you have no clear edge. When trading earnings, you want stocks with consistent performance (exceeding or lagging the implied move at least 70-80% of the time).
I have nothing against calendars for earnings play. I actually used a calendar for AAPL. I won't repeat myself about integrals between the b/e and the ability to customize strangle widths.
Like I said before, TSLA had already guided earlier in the quarter--hence the lower IV relative to other earnings announcements.
Like I said before, TSLA had already guided earlier in the quarter--hence the lower IV relative to other earnings announcements.
This isn't true. If it were, you would have an arbitrage. Specifically, for a calendar to be strictly better you would be saying there is a systematic mispricing in root time vol. At the end of the day, the calendar and the strangle trade the same basic view that the earnings vol (vol crush pnl) is > the actual earnings vol. The difference is the strangle will have a different convexity profile and the calendar will have risk to where the vol resets. Both are different varieties of chicken on the menu. Perhaps today you want a fried chicken and tomorrow you'll want a grilled chicken.
Exactly. The convexity speaks to the difference in gamma between the two setups.
And how that gamma changes as the spot moves a lot.