Hi @TheBigShort Thanks for this thread. Hi have no experience trading earnings but trying to understand what you guys are looking for. Looking at the HD numbers I don't understand why the expected earnings move is 4.3% . It seems that is 4.3 points, dollars, and that is a much less % move. You say the expected move is expensive compared with the previous realized moves. It seems that a short straddle could be the logical play when something is expensive, but you talk about shorting a calendar . Why, what do you expect ? thank you for sharing you experience.
Hey raf, I'm curious to know where are you getting the $4.3 earnings move? The calendar is a relative value play. You want to isolate the event volatility (implied move). To do this you take a long and short position on the ambient vol (the vol leading up into earnings) hence the calendar. @destriero posted a long calendar example in this thread where he was long the implied jump. In this case we are short the implied jump. The math was posted in an excel sheet above and for a better understanding of it, you can read volatility trading by euan sinclair and trading volatility by collin bennet. There is also an excellent paper written by 2 columbia students (just type event volatility columbia pdf on google and you should find it). If you just short the straddle (totally logical) you are now taking a view on ambient vol and implied move. In this case looking at Garch, Yang.Zhang 10/20, implied vol of .18 for feb22 seemed fair to cheap. If feb22 had been like 23 and Mar1 been 33, I would have shorted the straddle outright. Hope that helps
thanks @TheBigShort The expected 4.3 dollar move for earnings is aproximated, and probably very bad aproximated. In fact it is the first time I look at this. From TOS I get, for HD, 1) 15 FEB , 7 dte , iv= 20.20 price range= +/- 4.31 2) 22 FEB , 14 dte , iv= 18.64 p.r = 5.51 3) 01 MAR , 21 dte , iv= 28.37 p.r = 10.17 4) 08 MAR , 28 dte , iv= 26.99 p.r = 11.12 The diference in price from the first week to the second is 1.20 , and that is with no earnings . From the second to the third is 4.66 , earnings in this week. And from the third to the fourth is 0.95 So , what is the earnings expected move ? aprox 4,5 dollars in one direction, a 2,4 % move . It's very quick and dirty. Possibly wrong. If you want to compare the past realized moves with the actual expected move, I think you have to take the 2.4 %, and in the pasts earnings happened 3 times. If you short a calendar you are expecting that the difference in iv between the front and the back will reduce before the end of the front week. So probably you think that the front week iv will incresae and the back week iv will stay. Is that right , what makes you think that ? I have to think about it, I thought that short calendars were forbidden in ET. Thank you for the explanation and for the sheet.
You can't use the dollar amount difference as an approximation of the jump. If you go on think-back on TOS check the dollar difference between the 2 expirations 2 weeks ago. It should be less than the current $4.66. This is because event vol does not dominate total vol when you have lots of time to go (vol is additive). I am short the calendar because I think the implied jump of the back month will go from 4.2% (currently) to 3% by the time of the earnings event (and if it does not, I will continue to hold the short straddle through earnings). You could also look at it as I am short vega and hedging with gamma. If I just shorted the straddle I have no gamma hedge. I did not know short calendars were banned on ET but if they were it's because they have unlimited risk and are buying power intensive. You could easily buy a deep OTM call for the expiration you are short to fix that. There is alot of opportunities with calendars around earnings(long and short). One of my best trades of all time was a long calendar going into MSDO earnings. The event was expected in 10 days (but not confirmed) and the event was fully priced in for both the front and the back month. So my friend and I emailed the company to find out when they would be releasing earnings. This is the email we received. Because the earnings was less than 2 weeks away we had full confidence to short the front month and buy the back. The calendar went from $1.25, for $6.5 in 2 or 3 days (once they confirmed earnings).
Hey guys, I think there is about to be a short squeeze in THS. Insiders have been picking up alot of shares the past month, skew is is really starting to favour the call side and short int ratio just hit 10. I hope this finds some of you before market close
Barely moved around earnings. Must have been a nice trade! Do you know of any company hardhearted in Green Bay Appleton WI that might be looking at buying this company? This area is suddenly showing some interest in the company. Data is in percentiles not actual views.