I sold the IBM 100 straddle yesterday pre-earnings for a net credit of $9.10. The move in the stock was minimal after the earnings. I closed the position in the morning for a profit of $1.80. I noticed that if I had waited an hour longer I could've squeezed out another $0.90 with the stock at exactly the same price as when I closed the position. Is there a good time to close a straddle the day after earnings? Why would the price go down so much in 1 hour with the underlying being at the same price? Thx
Implied volatility was inflated prior to the earnings report. The ATM options deflated about 8% after the report since the underlying moved very little. Unfortunately there is no way to know exactly when and by how much the IV will move during the day. It just as easily could have moved against you in that hour.
But for the same price on the underlying what moves IV? Is it supply and demand of the options? Thanks for the reply.
If IV inflated prior to the earnings announcement, it generally deflates right after the release. As a general rule of thumb, IV will contract immediately and continue to contract at a slower rate during the day, assuming that there's no stunning news, good or bad. Again, in general, long positions tend to better if closed earlier in the day and short positions later in the day. But remember, thumbs come in all sizes