Registered: Feb 2012
04-09-12 05:11 PM
Quote from spindr0:
The morning of the EA, IV of the near month almost always drops like a rock. More often than not, the 2nd month's IV takes part of the morning to hit bottom so that many of these positions which are outright losers from 4 PM close to 4 PM close are winners in the AM if you cover the long leg on the losing side, thereby salvaging extra value. The short leg is apt to be near worthless so close the entire spread.
Conversely, if IV remains elevated, you could keep that long side open and flip the short side, selling higher value lower strike IV, converting the diagonal from bullish to bearish or vice versa (to a verticval). there are lots of possibilities and what you mutate into depends on what you want your ensuing bet to be.
I typically only get directionally biased calendars going into earnings. A week or two before EA I close them because I'm usually content with my profits. Because my account size is small, I trade a whole bunch on TOS. I never really thought about this new recipe with a little touch of a straddle to garnish the profits. A week or two before EA this works like a charm.
And yeah you're right, the morning of EA, I'll close my shorts assuming the IV drops which is the most likely scenario... otherwise, I'll remind myself not to panic and adjust accordingly..
I have a GOOG EA trade- 10 lots. I might even close this guy on the day of EA in the afternoon if GOOG doesn't move much... healthy profits there too. I may not even have to wait all the way till morning after EA...
This is a peace-of-mind kinda trade. I can study without worrying too much. FINAL WEEK OF SCHOOL!!! FINAL ON SATURDAY!!!
AI AI AI AIIIII!!!!