Take a look at ULTA, the day of their earnings, afternoon of August 29, 2019 (See Chart at bottom). 700X potential return overnight if you did better than me !!!!! I was in it as you can see (bottom of the Page), but I'm only showing you half the story. I had a couple of Sold Puts just above these strikes, that negated me making 700x and cost me some $$$, needless to say. My point in this question is where do you go to find some long shots like this, to play the Lotto sometimes ???? Price paid (10 Contracts) as you can see below was $199.31 Price at EARLY CLOSEOUT was $16,362.35 Again, good side of the trade only !!! In my case, this side of the trade (again I lost my backside on the other half of the trade), increased by 82x overnight for me. I got in for about $.24 per contract, and got out at several numbers around $20-$24.++. Best case, someone could have got in on Day 1 for about $.05-$.10 on these August 30th, 270 puts, when the stock that day was around $340, before it's huge drop the next day to just below $236 (August 30th of course, was expiration day on this play) and been up $35 on their nickel or dime play, OVERNIGHT. So, This is my first post here and I know about woulda, coulda, shoulda, and again, I didn't win on this trade, but I'm curious, does anyone play long shots like this from time to time, and where do you find them ??? 10 or 20 contracts for a nickel or a dime, wouldn't hurt my account much if it all goes to zero the next day. I added a chart below showing activity for those few days and an expanded view of a couple of those trades. I apologize for any poor formatting. Still trying to figure out this web page ! Thanks in advance.
This is suicide but at least you recognize it's a lotto. So I will let you in on the secret: 1. Dreamboat tech companies 2. Dreamboat "woke" companies 3. Triple leveraged index ETFs 4. Triple leveraged volatility ETFs I wouldn't even try to "find them". I would just put names on a dartboard near earnings, throw 50-100 darts, and put 1/100th of my account in each. At least this way you are maximizing the probability of an outsized win making up for all of your losses.
Not much suicide if you are placing $50-$250 worth of options, however the chance of a known company losing almost a third of its value is pretty rare and buying puts that far down for 5 cents the day before earnings is most likely a lost bet already. Now plunking down a few hundred bucks on 50 different companies ahead of earnings could be problematic since I'm sure someone trading $50-$250 worth of options most likely has an account size less than $50,000.
Nothing stopping you from taking a position day before the earnings either way. I usually, end up on the wrong side of the trade so, passed on this trading strategy. I guess with its huge potential gains, you can afford to lose a couple of trades then, recoup it all on one fell swoop! You probably, need a stronger stomach to take those losses until, you hit the big ones!
What do you think about about watching for unusual options activity instead(in addition to the other points you made)? Should be better than random, no? Like in below post https://www.elitetrader.com/et/threads/unusual-activity.335928/
How many negative results does this yield? Without quantifying that, listing one success is meaningless. I can claim that vix will shoot up every day and when it inevitably does claim to be a guru, but that doesn't mean I am or that my information is in any way actionable.
Yes, but we're talking in context of a lottery trade already. So is it better than throwing darts at pre-selected list? In other words, does unusual activity have any significance?
Consider that if you're jumping in on significant activity you're by definition at least second to the game. Probably 52nd if there's any alpha to it since it's trivial to write code to find it and jump on it. So you're no longer buying $.05 lotto tickets, you're now buying $100 pulls on the $100 slot machine. Is there alpha there? If there is, it requires systemic mispricing of options in that situation AND that none of the many smart professionals who spend all day every looking for such systemic mispricing realize it. There is systemic mispricing out there, but it's not in situations like this. Generally I've found that if my opportunity requires that everyone else in the market is a moron and I and I alone have found this great but stunningly simple opportunity, then I'm the moron. I'd say that would be the case here.
Just to be clear, not arguing but asking. Why do you assume one needs to jump on it? You simply notice something unusual is happening. As most seem to agree, it's not easy to figure out the intention based on this activity, but I think we can agree that something is "in play." For example, you notice that prior to earnings there's elevated activity in calls at strikes which are outside of the expected earnings move. Wouldn't it make you think - why is there so much interest in such a low probability strike? I don't know if this happens much, but is this way of thinking flawed?
Right, I'm just saying that if "high interest in a low probability strike" is a thing that leads with any regularity to "above risk adjusted returns for that strike", then it would be trivial to set up a program that looks for "high interest in a low probability strike" and buys lotto tickets on that instantly. The high interest is itself the first person jumping in, so you're by definition second. The many automated programs that would look for that activity if it really had alpha would be 3rd through XXXth in a matter of microseconds. You'd be (XXX+1) by the time you did your thinking, at which point the risk adjusted return of that option is exactly market, same as before the unusual activity, and the price won't be $.05 any more.