I collected .88 per I was short the synthetic fly. Nice call on treasuries as well (group chat). I have nothing on my radar the rest of the week. It looks like earnings pick back up next week.
Hey guys! My application is ready to go! The only thing I currently have left to do is video documentation for each variable. I will be doing a new variable everyday. Let me know what you think. I am not to nimble with iMovie editing so take it easy on me
Enjoyable read regarding earnings premium before and after the event https://poseidon01.ssrn.com/deliver...6026101110086092068023023071118094100&EXT=pdf
Nice paper. Thanks for sharing it. I gave a cursory reading and the only problem I have with it is that the "highly significant 3.34% return" they obtain from backtesting an earnings straddle strategy, is way too risky in real life option playing. This is especially the case with lower CAPs (where they find better returns), where bigger spreads might be more frequent and could really wipe out a consistent part of that return.
Thats a good point. They only had an R^2 of 2% as well (with significant Tstats). I really enjoyed it because it goes against the belief that implied vol before the event is over priced.
Disagree with your statement about not being significant. 3.34% return over 3 days is pretty significant, especially when they compared against straddle return over non-earning days. Your statement about too risky in real life option playing is pretty vague. They didn't include variance of the return in their table, but they do have chart over 17 year period. From the naked eye it doesn't look like high variance. Even if you reduce the return by 50% to include transaction costs and spreads, it is still significant return.
Very nice and slick looking interface. Great work. To be honest some of your explanations were a bit fast and over my head so depending on your target market you may want to slow thing down a bit and explain the theory behind each idea/feature. Would love to see some walk throughs of different trades you found and why you chose them. Can’t wait to watch and learn more.
The paper just says Day 0 is earnings announcement day. Are they just using calendar date? Unfortunately this would obfuscate a more precise conclusion since now we’re co-mingling days leading up to post-close announcement and days following pre-open announcement. The dynamics of earnings are interesting. It could be true that close to open jump vol is over-priced, but once the day move is factored in, realized outpaces implied. One of the things I first noticed trading these is that much less implied vol was reserved for the post-announcement intraday move than I would’ve expected. Maybe we should start looking a bit closer at jumps that seem close to fair price; buy those instead of passing on them in order to hold through post-earnings intraday move. I’ve been focused mainly on the jumps thus far but this paper will get me thinking a little more about the day moves.
Thanks Jon! I am going to try and break it down more in future videos. Explaining is an important skill I need to work on. Iv is still bid during the early part of the day so the extra IV is most likely to compensate for the jump < move. A neat paper to write would be selling vol @ 9.45 and holding until the following day close. You could also lean deltas in the direction of the jump/surprise due to PEAD.
Not sure what happened to Jeff Augen but he used to write about shorter term intraday moves like this in his books and probably has all the intraday data for 10+ years. I think he is busy just trying to sell his technical indicators now which is a shame.