KR - How To Make Money (Vol Scalp) on an Earnings Date News

Discussion in 'Options' started by livevol_ophir, Jun 3, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    KR is trading 20.00 with IV30&#8482 up 7.6%.

    <img src="">

    KR announced this morning that earnings will be released on June 17th. The news came out at 10:00 EST, the largest trades were at 10:04 EST. Why does that matter? Because it's one day before expo in the June cycle. Let's see how the vol has changed dramatically on this news and how pro traders are scalping vol.

    The company has traded over 14,000 options in the first two hours on total daily average option volume of just 3,990. Essentially all of the volume has been option purchases in the front month. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    The Options Tab (<a href="">in the article</a>) illustrates that the volume is mostly opening on all lines (trade volume >> open interest). Note also the front month vol is up 10.3 points while July is down. You can see the volume has mostly been in the Jun 20 straddle (ATM).

    For the last two earnings cycles the front month vol as 12 and 15 points higher than the back month on the day before earnings. As of this morning, the front month (June) was actually 4 points <i>lower</i> than July. There was uncertainty over the earnings date - most people were projecting June 20 (ish) - i.e. in the July cycle.

    The Skew Tab snap (<a href="">in the article</a>) for the last two days illustrates this point perfectly.

    If those pictures ain't worth 1,000 words (or would it be 2,000 words?) then I don't know what is. You can see the massive swing in relative vols. July is essentially unchanged, it's June that ripped.

    Finally, the Charts Tab (6 months) is below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    You can see two cycles ago KR gapped huge on earnings and vol was a super buy. Last time, vol was a sale. The pro trades today aren't about a bet on KR earnings. That's too risky. The trades today were a clean vol scalp. This is how pros make money. The news came out at 10:00 EST, the largest trades were at 10:04 EST.

    These are the little things pros do to make money. There's no magic, just preparation.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. Do you give any "importance" to there being "support" at $20 in KR? :confused:
  3. livevol_ophir

    livevol_ophir ET Sponsor

    I'm not a huge "chartist." Some guys on teh floor are more than others. This trade is just a great example of being aware of the possibility of an earnings date "surprise" relative to expo. Happens with divis too and a ton of money is made on this stuff with relatively minor risk.