AAPL - Earnings this Monday - Buy OTM QQQ weekly calls on Monday

Discussion in 'Options' started by FXforex, Oct 27, 2013.

  1. FXforex

    FXforex

    OK ..... Thanks for the explanation. That's definitely beyond me at this time, but in the future I will look into it more.
     
    #31     Oct 29, 2013
  2. more simply put he is backing out the actual event implied volatiltiy from whats else is left in the option.... so if your 30 days out, and your event is in 10 days.. you can't just figure all the implied vol built into the options is relative to that event in 10 days.. so he is differentiating between event vol , and just the regular volatiltiy thats left... its an attempt to isolate the event so you can see the actual relative value to other such events without a skewed perspective because there is more there ... the concept always helps first before equations make any sense..
     
    #32     Oct 29, 2013
  3. This is indeed interesting. I always understood that the overarching consideration was event IV, and never thought there were residuals.

    I am of course referring to the shortest expiration, as clearly the later expirations have lower IV, and less consideration for the event. That of course supports what you have stated.
     
    #33     Oct 29, 2013
  4. lcs

    lcs

    sorry i dont quite understand this part of the equation
    - log(83.50/82.92) * 0.5
    shouldnt it be just 1.75% / 2?

    on using longer-dated vol, which would be a better measure 1) using historical vols after removing say 2 std dev be a better measure (con: arbitrary segregation of event against regular) vs 2) using longer dated vols since events only make up small portion of the life span and thus significant but this vol is very sensitive to current regime.
     
    #34     Oct 30, 2013
  5. sle

    sle

    I was estimating the price of an OTM option - easiest way to do so without a calculator is to price an ATM option (so, 0.4 * sqrt(t) * iv) and subtract the delta adjustment (it's log(strike/spot) * delta ATM).

    As I said, the right way is to take two consequtive implied vols (e.g. 1m and 2m) and solve a system of linear equations with ambient vol and event vol as unknowns. This is one of the few times when grade school algebra actually comes in handy.
     
    #35     Oct 30, 2013
  6. sle

    sle

    Mea culpa i should have been clearer. In my defence, I was in the park on my iPad and had a few glasses of wine before I left.
     
    #36     Oct 30, 2013
  7. FXforex

    FXforex

    UPDATE:

    The QQQ 83.50 call position is still open. QQQ is at the same price ($83.00) when I entered the trade two days ago, and the 83.50 calls are down to $0.21 from $0.32.
     
    #37     Oct 30, 2013
  8. With both direction and time going against you are you considering just getting what you can for them tomorrow, or are you willing to ride it down to 0 ?
     
    #38     Oct 30, 2013
  9. lcs

    lcs

    thanks, sle. I still prefer the approximate method only on very short dated options since forming the 2 linear equations would still require personal judgment on the weights between events vols and everyday vols.
     
    #39     Oct 30, 2013
  10. FXforex

    FXforex

    Only time is going against me, the QQQ has been trading flat since I opened the position. My stop is the full premium paid and I see no sense in selling at about $0.05 when all that's needed is a 1.3% bounce to break even at this point.


    QQQ 5-day chart - Position still open, 1 day to go
    [​IMG]
    Red dot - Bought 10 contracts 83.50 calls at $0.32
     
    #40     Oct 31, 2013