As per atty's observation. Here is what happens to your position for every 500 bp drop in vols estimated in an analyzer. Forget the numbers since ToS is usually off at times with their vol starting point but look overall at the major losses with a vol drop which is likely to happen after earnings.
I hadn't modeled it, thanks OC. If the stock opens inside one sigma it will be marginally profitable after the report. I simply don't think it's worth the gamma-risk to front-run it for a small gain.
AAPL vol would have to get even higher then here for me to get excited about selling that front month Vega
Thanks everyone for your answers. Atticus and OC, it did not model flat volatility, but my experience is that the front-month volatility will be the one to really drop as it is the most inflated, don't you agree with that? It seems to me that your model forecasts a uniform drop in volatility in all months.
Model a vol-drop of 10 handles in the front and 3 in the back. Of course, it won't matter if the vols are modeled uniform at expiration of May. These calendars rarely work on big beta tech. Good luck.
Incidentally no one is really shopping much in the way of earnings plays for AAPL yet which says to me there are a lot of undecidedâs who will pass on it.
"Model a vol-drop of 10 handles in the front and 3 in the back. These calendars rarely work on big beta tech. Good luck." You mean a drop of 10% of IV in the front month and 3% in the back? Is that what usually happens on earnings? I agree that calendars are not the way to play earnings on volatile techs. But this trade would not be an "earnings play" only. The idea is to keep the Jan's and sell premium against them every month, rolling the short front month after earnings.
I see now that you're in May and July. I don't see the point of these mid-curve diagonals. Are you seeing a trough in July vol you're trying to exploit?
Modeling these things is GIGO. If you want to short vol I suggest a May long fly. The May 40/60/80 neutral fly is $6.00 offer, $5.85 fairval.