correct, for GMCR this would mean trying to pick up the 14/15/16 and 20/21/22 flies for under a dime earlier in the week, expecting to sell one the day after earnings for .25+, and/or hold for the next day's opex, if one of the flies looks to play the ATM range. only set back is the commish on flies, so the trade really does need more than simply a double on one side to make it positive. to me though, it looks better than a straddle to play any earnings move.
though i didn't get the idea here, i found this short blog piece showing the basic trade and how the strikes are selected. http://theoptionguru.com/blog/2011/04/amzn-spread-for-earnings-using-tos-mmm-feature/ i tried a few of these last week, on AAPL, AMZN, and FB, but with the modification of moving in a couple strikes, so the distance between the two butterflies was the same as the straddle cost, rather than two times that range. i was expecting the measured move priced in by the options, then a retrace before expiry. this only happened with AAPL, as there were a few days after the earnings move before weekly expiry. a single success, but 5 failures, while i'm shooting for 50% on them. with FB and AMZN, being closer to expiry when they announced, flies should have been placed centered at the full expected move, with FB moving from $27 -> $24 and AMZN from $220 to $237. a butterfly centered at the measured market move away from thepre-earnings closing price, $3 in FB and $16 in AMZN, would have been nice, nice winners, more than making up for the losing fly on the other side, and the commish. so this time around, i have picked two stocks giving out earnings, with history of wild moves, going into thur. and friday with their announcements. so, the only decision is when to jump into the weekly flies between now and earnings, and how deep to go. also, do i want to add any directional component to each of these 'story stocks', as each is at or near a pivotal price, as reflected by the 10%-20% implied moves priced in by the options guys much smarter and well funded than you or me, or, do i simply want to take what the market is offering, a move of certain length, in either direction, regardless of where i 'think' things could go.
I like unlimited profit profiles and company's that consistantly have higher realized vol compare to implied vol
the more i think about this trade.. on GMCR the more i think about just straight buying options... i've look at historical data.. And of course its moved more then options have implied.. as you would think.. so statistically speaking your better off buying options even if this earnings the vol implosion gets me .
your totally right... we should strip off a whole nothing section for us nut jobs.. i like actually playing earnings.. partly because of the blow outs.. sometimes the whole small bets paying out big thing happens.. i'm trying to get a little better at exploiting the vol term structure.. and i wanna start dipping into more calender spreading.. i'm frustrated with myself for not ratio spreading on cmg.. i sat there and stared at it over 400 thinking.. ya know i am going to put one combo on this sucker every month.. till it tanks.. whose next .. wheres the next momentum correction.. Priceline?
The way "social media" stocks are trading (FB, ZNGA, GRPN) I would think that the best trade for LNKD is to buy the 1 strike weekly OTM puts. At the moment those would be: LNKD Aug 2012 100.00 @ $5.50 http://finance.yahoo.com/q?s=LNKD120803P00100000 Earnings on Thursday.