PGR reports on July 17. This seems to have been a good long straddle in the past with the actual stock move outpacing the implied move 6 out of the past 6 events (table below). Price of the ATM straddle appears to be running slightly below average this cycle (chart below - red X at current price). Would love to hear what others think.
I have actually found the opposite! The short straddles 1m to expiration have performed very well except for the last earnings. I went back and checked a few of the straddles from your data. They are not delta neutral at inception and it just so happens that the past few events happened to move in the direction of the leaning delta. For example for the Jan 23rd straddle. The underlying price before the event was 63.29 and the ATM strike was 62.50. So you are already leaning positive deltas. Since the stock gapped up you made money. If it was the same move to the down side, you would have lost money.
Here are some of the stats I have for PGR. Implied Ernings move is 3% this quarter. It usually is 3.3% so you are right, it is a bit on the cheap side this quarter (especially after such a big move last quarter). But it seems like on average, there is a premium to the straddle price. The max jump over the last 14 quarters is only 3.89% so I don't see too much edge in buying the straddle. Maybe if it has jumped 7% before, you would want to take a closer look. IMO.
Interesting. I am not sure why their straddles are not delta neutral unless their prices are from open the day before earnings vs. end of day prices.
Sorry Jon, my chart is if you were short the At the money forward starting straddle at the close the day before earnings and then closed it the following day. Which is the theoretical delta neutral 30 day to expiration straddle. The straddles are not delta neutral because there is no 63.29 Straddle. Since they bot the 62.5 you were already long delta. So it's not a good measure of if Implied move was greater than the actual move. Yes the last move was much greater than what was implied by the market therefore you see the big loss
also jon, if you think the implied move is cheap, you want to buy strangles rather than straddles. I fall victim to this all the time. An increase in vol affects the (lets say 30 delta) wings much more than the ATM.
If buying a strangle, would you put bias into it? Meaning maybe if your a bit bullish moreso you'd buy more call contracts per puts.. and vice versa?