As a general rule, when the stock moves away from the strike, the straddle should benefit (assuming the straddle started at ATM strike). You are correct that if at the same time IV decreases, you might not see much gains. But this rarely happens before earnings. What I'm saying is that those trades can make money from vega or gamma or both. And if the stock doesn't move, in most cases IV increase will still cover or slightly outpace the negative theta. What you are saying is that the markets are efficient and the prices reflect the upcoming earnings. This might be true in theory, but not in reality. Just look at recent cases of AMZN, GOOG, MSFT etc. where the stock moved double of the pre-earnings straddle price. You call it single event? Those "single" events would erase months of gains if you followed tastytrade advice and sold premium before earnings only because "IV rank is high". And if you want recent example of vega gains before earnings, look at QCOM where we entered the straddle at 2.43 and exited at 2.77 within one hour, and the price continued climbing and reached 3.00+ within the next few hours. IV increased from 65% to 80%+.
Ok, there is a hodge-podge of claims here. Let's take them one by one: * What you are saying is that the markets are efficient and the prices reflect the upcoming earnings. This might be true in theory, but not in reality. No, I do not claim that the market predicts each particular earnings move, that would be silly. However, move that's implied tend to reflect the history of earnings in that stock, some recent information about its peers and some risk premium. * Just look at recent cases of AMZN, GOOG, MSFT etc. where the stock moved double of the pre-earnings straddle price. Obviously, earnings event is new information and any single event can not be perfectly priced. For any stock that moved 2x the implied move you will find plenty that moved 10% of the implied move. * You call it single event? Those "single" events would erase months of gains if you followed tastytrade advice and sold premium before earnings only because "IV rank is high". LOL. If you are trading event vol (*) 2x move is negligible in the long scheme of things. It should happen fairly frequently - even if you assume earnings moves are normally distributed, 2x of the straddle price should happen 2 times out of a hundred. The "events" are days when the stock moves 3+ standard deviation and those do hurt becase it's hard to diversify against them. * tastytrade advice and sold premium before earnings only because "IV rank is high". I hope they are more sophisticated than that, but maybe not. However, both you and tasty trade make a claim of a systematic mis-pricing in a liquid market, driven mostly by the public information and well covered by professional traders. If I had to pick a side in that argument, I'd pick tastytrade over you. Simply because in any setting where convexity is traded, the pricing bias is almost always toward risk premium. * And if you want recent example of vega gains before earnings, look at QCOM where we entered the straddle at 2.43 and exited at 2.77 within one hour, and the price continued climbing and reached 3.00+ within the next few hours. IV increased from 65% to 80%+. Yeah, my hindsight book is doing great too. Let me just make it clear for the court You are making a claim that front-month straddles pre-earnings are (a) systematically cheap (in 80% of cases?) 2 days prior and (b) in most cases get re-priced before the earnings move. Plus, supposedly (c) that phenomena exists in the most liquid optionable stocks and (d) is sufficient to cover round trip transaction costs.
No, I'm not making that claim. What I'm saying is: (a) IV increases before earnings, and in many cases this increase can outpace the negative theta, sometimes slightly, sometimes (like in QCOM case) significantly. (b) If the stock moves, the straddle can benefit from gamma gains. (c) IV increase is not linear. This is why it is important to enter at favorable prices. It does not happen 2 days before earnings (QCOM was just an example). (d) The risk is very small because even if IV increase is not enough to cover the negative theta, straddle price still has a floor due to upcoming earnings. The big difference between us and tastytrade is that we have proven and verified track record. All they have is theoretical studies that "prove" that buying straddles before earnings doesn't work. Like this one - Buying Premium Prior To Earnings - Does It Work? where they fine tune the parameters to fit their thesis. And yes, the profits are more than sufficient to cover commissions. And yes, there are plenty of inefficiencies even in the most liquid markets. Otherwise how could you make money? "For any stock that moved 2x the implied move you will find plenty that moved 10% of the implied move." - Absolutely. In fact, I do agree that on average, the implied move is overpriced, and on average, stocks move after earnings less than the implied move. The problem? This is true if you look at many events over a long period of time. But in the short term, it is too unpredictable and returns can be too volatile. This is why we don't hold through earnings and always sell before earnings are released.
Verified by whom? Can you post track record results audited from accountants? Otherwise it is just like any other snake oil forum results.
Verified by our members. Everyone can take a 10 day FREE trial and compare the trades on the performance page with trades we post on the forum in real time with screenshots of broker fills.
As I said other than verifiable from an CPA or firms like fundseeder, everything else is a heresay. Magical performance without taking commissions into account, mid point fills is meaningless especially when that makes bulk of returns. For a person claiming to earn 100% return every year, spending few grand on CPA shouldn't be that hard right?
From the performance page: Our track record is based on real fills, not hypothetical performance. All trades are posted on the forum with screenshots of broker fills. Which part you have difficulty to understand? I highlighted the relevant parts to make it easier for you. For people like you, no proof will be enough. That's fine. Skeptics will continue to doubt, and our members will continue to profit.
Your website says commission is not included. Anyone who trades option spreads knows that commissions are one of the biggest expenses, especially for the small accounts. If it based on real fills, why are you afraid of spending few thousands on accountants to get verified?
Because everyone pays different commissions. We provide raw data, list of trades, and everyone can calculate how commissions will impact his returns. We also mention that commission impact is around 2% per month. As a side note, not sure what do you mean by "especially for the small accounts". This is true only if you pay ticket fee. If your commissions structure is based on fee per contract, commissions impact is the same for 10k account or 100k account. Because any reasonable person can take the free trial and verify all our trades in real time. And if after seeing me posting a trade on the forum in real time with screenshot of my broker fills you are still not convinced - well, I guess in this case nothing will convince you. And if this is your approach, then the service will not be a good fit for you anyway. Our service is for serious traders who are willing to make a commitment and work hard to become better traders. We post hundreds of trades each year, official and unofficial, and teach members different options strategies (like pre-earnings straddle I described earlier). The service is not for people who expect to make triple digit returns with no effort, and it is not for people who think that everyone is a charlatan and trying to scam them.
So why can't you include 2%/ month and calculate CAGR. I don't know if you have really traded in trading account or just paper trading, even without the ticket fee it makes big difference, if one trades mini contract and normal contract size. Trading SPY and SPX or Amazon mini vs regular option contract is different. Reasonable people can verify results much more easily from verified fundseeder or collective2 or audited data, than going through screen shots taken from paper trading accounts where fills are not representative.