I am sure everybody has noticed by now the straddle pricing for Goog ATM money options expiring tommorow, Nov & Dec. If you look historically, straddle priced an average of 7.80 % move and GOOG moved 7.06% day after the earnings for the last 8 quarters. What struck me odd for this quarter is Nov options are priced at quiet low IV levels, Dec ATM is priced at lowest IV levels -GOOG never experienced 23.8 % vol on a 60 day Garman Klass HV basis in last 2 years. So is it straddle is priced in too cheap which makes it a buy or just no movement is expected out of this earnings. Current ATM straddle is pricing in 4.90 % move only..
Maybe you need to control for the market volatility, say the VIX level. So the difference is mostly because of the lower VIX rather than the GOOG earnings valuation being lower. Too late now, hopefully you bought that straddle
very interesting... talk of this is going on here to http://www.elitetrader.com/vb/showthread.php?s=&postid=3655581#post3655581
kapw7 That's an interesting idea ... I always used ratio of IV to realized vol to assess how expensive Implied is in relation to realized. But controlling for VIX sounds pretty interesting. Actually if you subtract VIX or IV30 for SPY from underlying IV and subtract the realized vol of S&P from underlying realized, it should give an good assessment of expensive or cheapness of vol in the underlying. Look forward to hear input further on it