I don't follow your method. You can take current realized + risk premium. You can also do it using two near maturities. Earnings are about Gamma. The vol crushing is compensation for a higher expected gamma move. a LEAP has less gamma/contract and thus won't make as much money. Think about a weekly option vs a monthly option. If you bought the straddle swap and on earnings day the stock moved zero, would you make or lose money?
I see you've posted your email address. If you know how to run BitTorrent I will email you a torrent for Natenberg and Sinclair. Let me know.
so when you said where volatility will settle after earnings, did you mean implied or realized? Because future expected realized is quite easy... As for the risk premium isn't that simply IV-RV? Then current realized + risk premium would simply give us the implied vol ... boy am I lost. Please help ? As for the question you posed, (straddle swap... i take it you mean just a straddle?) if the underlying didn't move at all, if im long the straddle, I'd lose money... It's simple to see what move the market is implying. I'd been using the front and back month implied to calculate the implied move. Atticus in another thread brilliantly quipped it's as simple as looking at the straddle cost *slapped myself* However, when I look back on straddle performance for earnings on aapl, PCLN, etc, the short LEAP straddles make money while short near term straddles have lost money or the performance has been sub-par compared to that of the LEAPS. That's what's baffling me. Is it because gamma is lower for the LEAPS and the fall in IV more than compensates for the rise in gamma post-earnings (as compared to the near-term ones)? I've usually sold ICs only if weeklies are available for earnings- selling far OTM wings and banking on theta- has worked fairly well albeit with sub-par returns. Wanna diversify a bit...
Yes. Thats the method I was describing. Which times did the leap outperform the front month? I am surprised if you are saw this consistently. It shouldn't be. Straddle swap is a calendar spread of straddles. Short straddle in one maturity and long straddle in another.
Emilio Lizarro Thankyou for the offer. I am going to try and get a hard copy somehow. I didn´t even know what Bit Torrent was. Which is not surprising. Just looked it up. Back around the beginning 1990´s I was on the cutting edge. 20 + years later I practically shun all the new stuff. My old age brain is too full of stuff I never use anymore. I find at my age, I´m gravitating to my comfort zone, books on paper. Read about six a week to my librarians dispair. Like to lay back on the couch, eat, drink and read and listen to music. My wife is always messing with me, because she buys me cell phones and never use them. Too complicated ( grin ) You were very kind though to think of me this way. I do appreciate it. Just don´t want to learn a new program of file sharing. Atticus, Don and others on here, have my brain helter skelter as it is, with all the stuff they talk about, I´m trying to learn. At least their stuff could be money producing. Some kind of score card can be kept that way. Limitations of age I´m afraid. Got to set my priorities. Appreciate your generosity though. THANKYOU!
Oh so you did mean what the implied $ move will be. Gotcha. And as for the LEAPS outperforming the front month, I looked at the results in TOS thinkback. I sold the straddles for the front and the LEAP a day before the earnings and looked at the performance. Mind you, TOS's lookback feature only gives the EOD prices. But the LEAPS outperformed nonetheless.. A recent discussion we had here was on SODA. Earnings on Feb 28th after market. A Jan 13 straddle beats the Mar 12 straddle (strike at 47.5) by about $30 the next day on Feb 29th. I will, however, concede that it is TOS so the results might not be very reflective of actual market conditions before the day ends... Also, what I find interesting is when I look at the IV vs RV graph, the day after the earnings, they usually intersect touch other, as if the IV was perfectly priced in after the event. As for the straddle swap- isn't a call calendar the same as a put calendar? So a simple call or put calendar would work too wouldn't it?
___________________________________________________ The above 2 buy trade closed out today at a higher profit than listed above (see results excel attachment). Profit Goal was increased to the +57% above Buy No. 2 because on Thursday night a new confirming call signal occurred with code STD-LEAD which means: Lead signal in a new direction, increase profit goal to the maximum sell limit of 57% above the lowest buy (Buy No. 2: 1.65 X 1.57= 2.60) and increase the stop to -40% below Buy No. 1 (Buy No. 1: 2.15 -40% = 1.29). Thursday nights call signal wasn't posted because it didn't fill, but any open signals (03-20 & 03-22 above) then take on the parameters of the new signal. (Don: Underlying was in a 2 minute range of 141.14-141.21)
CALENDAR TOS PAPER TRADING ACCOUNT. So far, the calendar has reduced from a spread of .51 cents to .45 cents. This was the March Quarterly 67 CALL sold and the April 67 Call bought. Just watching it perform, for learning purposes. Interesting and encouraging.
In the past I had tried the PAIRS TRADING. I traded the QQQ and the VIX as a pair. They move opposite. I came to the conclusion it was basically directional and thus no better than just trading in the direction of whatever you were trading. Somebody brought up PAIRS TRADING again, last week, or the week before on his forum and I have my note here on it. As I understand PAIRS TRADING, you use two different items. I was wondering if you could use the idea with one index like the QQQ in just Calls and Puts? The calls and puts do converge eventually, though in a trend it would be biased, to one side or another. The idea in short term trading, of two days, or a week, you could actually add contracts in the direction of the trend perhaps? Not sure how you would do that? As the finally result when CALLS and PUTS converge would be either higher or lower in the market. I thought you might simply keep increasing the number of contracts until they reversed and then later converged. Or perhaps doubling up or something?