I would love to hear your thoughts on this trade idea.

Discussion in 'Options' started by Shhhhh, Jun 18, 2012.

  1. Shhhhh

    Shhhhh

    I tend to gravitate towards high probability options trades where you may make a
    little less but have a better chance of making something. Usually I stick to
    debit spreads (double calendars are some of my favorite trades)...

    Having said that I always feel due to my "conservative nature" I miss out on
    lots of earnings fun, so I was looking at charts through think or swim and would
    love your thoughts on this reverse iron condor:

    Underlying: GOOG
    BUY: +1 JULY 580 CALL
    SELL: -1 JULY 585 CALL
    BUY: +1 JULY 535 PUT
    SELL: -1 JULY 530 PUT

    Total Debit to enter trade: $330
    Max Profit (NOT INCLUDING COMMISSIONS): $170

    This is a trade based on the fact that it will capture earnings and it is rare
    for GOOG to move less than 5% in either direction. So as long as it moves 5% or
    more in either direction I will achieve max profit.

    What do you guys think? I look forward to any and all replies.

    Thanks!
     
  2. Why sell the outside wings? If you are going to be long vol, be in a position to make out in a real vol event.
     
  3. He is, no?

    The OP is short the natural condor. I'd rather be long an ITM bull vert than pay for the 530/530 put spread.

    The 560/570 bull spread is a nearly 1:1 proposition. I think it will outperform the short condor by expiration. Initially short vol but bimodal (only to Ve) into a strike touch or below.

    It's very difficult to get hurt on that bull vertical prior to earnings.
     
  4. That could work, if you're sure goog is going to move. If you're experienced with calendars, why not buy the goog options in the month of the earnings. Then sell the shorter term options. This would let you take advantage of the rising volatility in the options you own (because of "earnings fear"). Plus, you get the "normal" theta benefits of the options you sold.
     
  5. ive tried earnings options trades several different ways.. bottom line is your speculating on a implied volality implosion or your hoping that something really unexpected is going to happen.. in Goog you can see the options already pricing in a 80 dollar move at earnings.. and rememeber Goog doesn't seem to play to wall street with its forcasting and such... calenders can go wrong .. if you buy a horizontal spread.. say sell the same strike in the front month that is loaded with vol and buy the back month that has alot less vol.. the vol implosion is like quick sand if it doesn't move that much.. . and if it does move that much both options go Deep in the money and you won't get out of the trade with very much profit... thats a sort of thread the needle trade..
    bottom line.. more often times then not goog does well.. don't bet on just one earnings.. be directional and personally i would either diagonal calender spread or just plane vertical spread.. i've actually made money on goog earnings myself
     
  6. The implosion in IV is virtually guaranteed, it's the realized vol that's the killer.
     
  7. yeah thats what i guess what i was kinda getting at.. to me the bottom line is.. is identifying which options to sell that are way over priced and buying which ones are cheaper then what could potentially be the realized vol minus the overpriced option you sold..

    bought option under price related to projected realized vol then discount selling a overpriced out of the money option to equal more realized vol somewhere in between.. meaning the loss in the implosion in the sold makes up for even a minor gain to slight loss in the bought that could still keep you in profit .. depending on the situation and how i feel about the company.. i've bought longer distance calls closer to the money.. sold the otm calls front money to exploit the over pricing... but if it goes the other direction.. no matter what your basically at a loss.. and i always do figure the problem sometimes lies in all these verticals and diagonals is that you never leave your self in a unlimited profit position for rare events!