ATM dynamic

Discussion in 'Options' started by J-Law, Apr 22, 2012.

  1. J-Law


    If you pull up an option chain for both the April & May CMG series.
    420 is the ATM strike. If you compare calls to puts settlements from this past friday's session, CMG sold off 11 pts. The calls got hammered to the tune of 10 handles plus & their premiums 1/3 if not halved. Yet, The entire put structure just marginally appreciated in value. Maybe 2 handles @ATM & the deep ITM puts didn't reflect the entire underlying's sell off.

    How would you explain this dynamic?
  2. IV implosion.
  3. Earnings report, perhaps?
  4. 'xactly.
  5. J-Law


    EarningS they reported strong on 4/19. 35% increase in EPS.
    Yes, vol. But wondering how. Vol crush on the calls. But not action in the puts?
  6. How what? What does "not action in the puts" mean?
  7. Vol crush hits both sides. Premiums were massively overinflated pre earnings. Even if u r right on direction u need an extreme multiple std deviation move to compensate. Pretty simple stuff here.
  8. J-Law


    Yes, Riff thought about it for a bit. Thanks. Then, it hit me.
    Thanks for posting guys.
  9. related funny but absolutely true story re to selling options ahead of earnings...i worked at a retail brokerage once and took a call from a client who had sold enough naked puts to choke an elephant on a highflier momentum stock. anyways in his infinite wisdom he did this less than a week before earnings and never flattened or hedged before then calls up after the stock drops 30% b/c of earnings and lost more money than my salary. here's the best part - he had no idea why the stock dropped! i had to bite my tongue so i didn't laugh and/or say "well a fool and his money..."

    happy trading - and check when earnings come out...:cool: