AET - Trading Earnings Pattens

Discussion in 'Options' started by livevol_ophir, Apr 28, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    AET is trading 30.59 with earnings BMO tomorrow.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/S9iAPJuanyI/AAAAAAAACFw/I1531upcYmw/s1600/aet_summary.gif">

    With earnings coming up I looked at the trends (vol). It turns out that selling the front month ATM straddle the day before earnings and buying it back the day after has won 6/7 times. Further, the one loss was the smallest absolute move of all. The stats are included.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/S9iAPlPaabI/AAAAAAAACGA/Bkks84gHeVk/s1600/aet_e_stats.gif">

    The Options Tab demonstrates the current prices - the ATM front straddle has fair value of ~ $2.49 with nice and tight/liquid markets.

    The Earnings & Dividends Tab for the last 7 quarters are included. First the most recent three quarters (all wins; <a href="http://livevol.blogspot.com/2010/04/aet.html"> in the article </a>):

    What we're lookin' at:
    (1) The top ROW is AET stock price 5 trading days before earnings through 5 trading days after.
    (2) The second ROW are the front 2 month ATM straddles for the same period - focus on purple - the front month.
    (3) The third ROW is the implied vol for those straddles - focus on the red - the front month. NOTE: The red line always collapses after earnings - this is called the vol crush after earnings.

    And then the four prior to that (3 wins/1 loss <a href="http://livevol.blogspot.com/2010/04/aet.html"> in the article </a>).

    One word of caution - AET is an insurer - so you never know about the crazy news...

    This is trade analysis, not a recommendation.

    Details, vols, straddles, prices here:
    http://livevol.blogspot.com/2010/04/aet.html