sorry one type of earnings play trying to game the volatility is to sell premium prior to earnings then buy back after earnings for a gain. or converting a straddle play to a butterfly for cheaper than you can buy the butterfly outright. I think its a great strategy but works best if you are slightly directional about it. I can't do the strategy because I work in an IRA and cannot sell naked calls so I do other things like above.
Ahhh - now I get it. Interesting about CME - sure looks good to the downside right now. I'll paper trade this one with you and see where we end up.
"the waiting is the hardest part." Donna - are you a full time trader? Do you mainly focus on options or other instruments as well?
Cool. I'm just getting back into trading after a 7 year hiatus. I was lucky enough to work for Hertz when Ford spun us off and took us public back in '98, I think. '97 or '98. I bought as much at the IPO as I could with my own and OPM and set aside a chunk of the profits to trade options. I got HAMMERED that year on capital gains and decided to give it a rest until I could figure out how to protect my earnings. Back then it was just straight calls and leaps. I'm finally learning some of the spread strategies and so far this year it's going well. I've recently started to train to trade the FOREX as well. Nothing like a little brain damage to keep a girl up at night. I will definitely let you know how the paper trade works out. Today is a pretty good day. Got in and out of PGR with a quick pop on a stock split announcement. My UST is finally taking off - up 23% and my play on LMT this morning is now up 6% and climbing.
This is an interesting site about straddles/strangles. www.optionslam.com I like to go back and look at what stocks have moved the most in the past on either earnings or just in general and quite a few of them average around 14% movement per month. I'm currently in a long term play on AAPL and MDTL. They seem to move a lot, consistently, in both directions so maybe I can make some money over the next few months. I'd rather have short term plays but I will settle for longer term if that means increasing my wins and lowering my losses. I'm 23 and I've also started some long term retirement investing through Wells Fargo's share builder program. I'd love to retire by 40 but I'm not going to lose sleep over it if I can't.
Hey, cool site. The past earnings performance section is really great. Donna, the 490/520 didn't do much yet. CNMEQ - sold at 22.20 - ended at 22.30 CNMED - bought at 10.40 - ended at 10.11
Just a couple of comments from someone who has quite a bit of experience with what your are suggesting in your first couple posts (albeit that was quite a while ago before I learned how to trade options more efficiently). More often than not the IV is over-inflated before the earnings announcement. IOW, for the most part, a straddle purchased within a few days of the ER will be a losing trade. It will be VERY difficult to have consistent success picking tickers that will move enough to offset the IV collapse. On the other hand, you could do what has been suggested here and purchase the straddle a couple weeks before. In my experience this is also a losing trade as you would really only be buying the front month options and theta will have killed you by then. Also, you will probably have moved away from the strikes that were originally selected so you are no longer delta neutral and if you want to balance back out before the ER you will have to make an adjustment, usually at a loss. If you choose not to make the adjustment and remain unbalanced, there is a high likelyhood that the underlying runs one direction before ER and then reverses the other direction after ER. In this case you get screwed to say the least. Purchasing the strangle does decrease the odds of success. Actually, the strangle is more of a lottery ticket than anything else. What it all comes down to for me, the only way to really make consistent money buying a straddle is to do so a couple weeks before the announcement looking for the IV increase into the ER and then sell the day before the earnings are released. But it seems you have very limited knowledge of IV so this would also be very hard for you to do. I would suggest staying away from ER until you are much more familiar with the greeks and option pricing.
Why would you make this assumption? IV and HV are something I look at and factor into my trades. I've never been higher than a 40% IV in any of my earnings plays except on BUPS when the higher the better. I prefer to hone my trading plan based on my own experiences not someone else's.