Great post , RM. OTM is the way to go , but why high vols stocks are better ? Vols nominal and debit paid are trade offs , no ? And you are missing one (but most important part) in earnings trades...Check out LOW's NOV/DEC otm calendar's prices for the last week , it should give you a hint
I agree with OTM calendar, but why rangebound stocks? If you know it is rangebound, there are many other ways of making money.
XLE's ATM Nov Puts have a gamma of 0.20 compared to OIH ATM Puts have a gamma of 0.06. Why the big difference? OIH has an IV of 32 while XLE is 25. So the high gamma in my spread is a function of XLE not the position. A similar OIH multi calendar has a gamma of -42.
In looking at it further, XLE ATM Theta is .05 while OIH is .15. So more of the theta has bled out of the XLE position, causing the higher gamma (gamma is the inverse of theta, right?). It looks like to me I should be looking to close the XLE position Monday, while an OIH position could be held onto longer.
IV, didnt say it was better, just that it was personal preference. I also didnt say it was an earnings strat either. Playing the cyclical effects on vols is a whole other topic that i dont intend to go into. I leave that for you to discuss one day if you so choose.
Again, rangebound high vol stocks was a personal preference and it mostly has to do with my signal and the way i like to structure the vega part of the bet. I dont play these for the theta yip.
Yep. I mostly play the delta angle so short front month, long next month with 7+ days in the front month.
New to those calendars , still testing , but I like what I see so far...Future vols bet aside , it looks to me that best way to enter non-directional trade is : 1. Double long calendar 2. 30d-60d OR 60d-90d 3. OTM or even FOTM (which is not necessary is a lotto ticket)