by buying Mar selling back months tho arn't you really buying the much higher vols. So if vols go down after reporting you would lose out wouldn't you?
not really , both front and back month vols are inflated , BUT back month have a higher vega (May more then double than March) , so if March vols will lose 20bp , but May 10 its an even $ amount. The rest is in the stock move. Maybe I'm not explaining it right.
Thanks! I got it at MAR/MAY 62.5 call at $1.85 credit and Mar/Aug 62.5 call at $4.00 credit. The IV data on the call side is here: Mar 58.37%, May 44.39%, Aug 41.88% Gamma for Mar/May is 3.95 and Mar/Aug is $3.5 I project that if IV Mar drop 20% and May drop 10%, the stock has to move from $63 to $57 or $68 to break even. I guess I underestimate the vol lost from the back month. I project that if IV Mar drop 20% and Aug drop 15%, the stock has to move from $63 to $56.5 or $75 to break even. This number does not look right to me.
Do you mean Marc vol will loose 20bp and may will loose 10bp ? This will put IV of both of them about 3x %. Or do you mean Mar vol will loose 20bp and May 10 will loose certain amount of vol which in dollar term is equivalent of Mar $ lost in vol ? Thanks,
Here is the result after earning: The IV of Mar 62.5 call is 40.15% loss of 18% IV of May is 40.54% (only about 4% drop). IV of Aug is 40.68% (1.2% drop). Mar 62.5 call is now $2.75, May $5.05, and Aug $7.5. The RC Marc/May lost is $0.4/contract. The Mar/Aug lost is $0.75/contract. I learn a lot from this paper trade. I knew this scenario would put me in quite a good lost but did not expect MRVL will stay the same after earning. Another one I followed was NTES. Since I did not do the paper trade, I just recorded the IV of and price of 75 put. Before Earning: Mar 75P IV 67%, $4.7, APR 75P IV 51%, $5.6 After Earning: Mar 75P IV 41%, $0.30, APR 75P IV 38.86%, $1.15 The RC on NTES would generate credit $0.9 and can be closed for $0.85 debit. So this trade still does not make money even if the stock moved $10 today !.
MRVL ended up as complete disaster trade ; everything went wrong. The biggest disappointment was collapse in MAY vols by only 4% , would this collapse be at 10% (as expected) , this trade be at break even WITHOUT any change in price. Now you also now why I enter all/most of those trades when Front month is < 15 d before expirations. If this would of be a case , a premium on the May call would be less by 70c . Good luck with your future Rc ( if any )