Registered: Jun 2007
09-20-12 01:06 AM
I was looking at some of the earnings coming out today and tomorrow and was surprised at just how high the Sept IVs are in relation to the Octs and I was trying to put together some positions to take advantage of the skew knowing a few things:
1. I don't know what the stock will do price movement wise after earnings.
2. I know the Sept IVs will plunge and by Sept expiration at least there will be no time value (of course there may very well be intrinsic value).
3. I know the Oct IVs will likely drop off quite a bit as well.
I saw ADBE and did this trade on paper before market close:
-10 31 Strike Sept Calls - $231 each - IV ~119
+20 35 Strike Oct Calls - $61 each - IV ~ 35
Credit = $1090
If ADBE were to fall below $31, you could keep the credits. Otherwise, you hope the extra qty of calls for Oct and the fact they still have about a month to go allows you to close out for a reasonable price. If ADBE moves up enough of course, there could be good gains. ADBE in AH isn't changed much so we'll see what happens, but probably not real good so far.
I also found BBBY even though I must admit I didn't know they were reporting until after hours. I did the following as a similar paper trade:
-10 67.5 Strike Sept Calls - $310 each - IV ~ 119
+20 75.0 Strike Oct Calls - $89 each - IV ~ 36
Credit = $1320.
In the case of BBBY, it is about $65ish AH, so there appears to be a decent chance the 67.5s will be nearly worthless tomorrow and the trader could keep the credits and the extra calls or of course sell the calls for what they can get.
I also looked at ORCL which has earnings tomorrow AH and did this as a paper trade:
-5 31.5 Strike Sept Calls - $147 each - IV ~ 70
+10 34 Strike Oct - $40 each - IV ~ 22.5
This is a $335 credit with $1250 requirements.
So, I am going to watch these and was just looking for any insight people had about similar trades, or other large IV skew pre-earnings option trades you guys might like to do.