IV skews and earning related option strategies

Discussion in 'Options' started by Alpine, Jan 26, 2008.

  1. Alpine


    What are the effective strategies to play the front/back month IV skews before the earnings? And good risk/reward strategies in playing the IV rise/fall around earnings?
  2. Near expiration, I find reverse calendars interesting if the 2nd month is inflated and the near month can be had for peanuts, despite the skew. Look for posts by IV_Trader on this topic. He's the RC man! (g)
  3. In addition to the excellent previous suggestion. Consider buying a straddle and selling a strangle (immediate
    next strikes) noth next month if current expiration is soon. Assumptions: volality will collapse and stock moves. If you are
    right on both (particularly the second) you should make money.

    Also OTM butterflies are theoretical candidates. It is a spec though. I have not tried them.
  4. That's a good suggestion for the flip side of RC's. And if you're 2-3 weeks away from expiration, under the right circumstances (good front month skew, not a lot of 2nd month IV expansion and an expectation of price movement), there are also some interesting possibilities with diagonalizing and slightly under writing the strangles.
  5. Due to latest market action, cyclical vols (report related) is broken. Calendars are the way to go right now (front/back month tenor …of course if you know where it’s going)
  6. Alpine


    IV_trader, when you say "Calendars are the way to go", you mean short calendars?

  7. long front month , short back