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cdcaveman

Registered: Aug 2011
Posts: 3513

07-22-12 10:47 PM

is there a good way to play the back month against the front... I noticed on the goog earnings that the back month got crushed so hard that it was only worth a few cents after earnings came out... such that.. you could have easily funded a upside blow out in the front weekly with selling the back month vol.. so basically what i'm saying is .. selling a otm back month to fund a closer to the money ratio..
I was thinking of combining this with a butterfly in the weekly with a positive side bias

-otm sept
+closer to the money july weekly

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cdcaveman

Registered: Aug 2011
Posts: 3513

07-22-12 11:38 PM

a positive biased butterfly seems in order here..

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Doobs789

Registered: Feb 2008
Posts: 558

07-26-12 04:02 AM

Quote from cdcaveman:

is there a good way to play the back month against the front... I noticed on the goog earnings that the back month got crushed so hard that it was only worth a few cents after earnings came out... such that.. you could have easily funded a upside blow out in the front weekly with selling the back month vol.. so basically what i'm saying is .. selling a otm back month to fund a closer to the money ratio..
I was thinking of combining this with a butterfly in the weekly with a positive side bias

-otm sept
+closer to the money july weekly

This. Short time spread usually works.

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cdcaveman

Registered: Aug 2011
Posts: 3513

07-26-12 04:12 AM

Quote from Doobs789:

This. Short time spread usually works.

you mean when it actually moves.. i'm trying to come up with a butterfly & ratio backspreads for earnings that make sense.. i'm just having a hard time modeling the vol implosion on both options with the underlying at different strikes so i can pick the right freaking strikes.. the right degree out of the money so if theres not a blow out the back month isn't worth anything but if you do get a beat but not that much of a move i wanna know what my back month could potientially be worth . ya feel me? these profit graphs all make it hard to seperate volatility assumptions per leg..
you know you figure the back month is going to go back to some regular if not less then normal implied number based on where the underlying is ..
then when does the front month contracts start to make up for the backmonth considering the vol implosion on the back as well. . get me?
this freaking excel spread sheet deal i'm messing with you can't seperate the leg volatilites to model.. grr or at least i don't know how to do it

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cdcaveman

Registered: Aug 2011
Posts: 3513

07-27-12 07:36 AM

Quote from Doobs789:

This. Short time spread usually works.

this chart shows how well it works .. looks like you could have easy got a dollar out of that.. ones the back month aug the other is this week at the 670 strike

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