My research (admittedly a few years ago) was the exact opposite. Earnings were generally priced a little rich. You're sample worked that way because the market went from a bull market to pricing in a recession. You caught a bearish turn. If you look at most real economy metrics, things started changing then and the world was caught by surprize. Of course there can be surprizes in both ways. Bidu today (massively overpriced) , LNKD last week (under priced).
Nine Ender I think you are misunderstanding? Ryan is primarily making straight directional bets only. a) He has already long passed using his own money. He is gambling with the casino´s money. He can risk as much as he wants and get away with it. A different argument might be he should take some money, ( initial investment ) off the table though. b) Also since he is betting by buying only, HIS RISK is limited to the value of the option. That is why you bet with options, or at least I do. Knowing my cash risk beforehand. It is not an open risk, for a BLACK SWAN event. He has clearly shown and stated, each bet is written off before he makes it. If you get something back from a loser, then that is icing on the cake. As another writer on here mentioned in a paper trading test, it was possible to have a 70 to 30 ratio winners, in betting this way. I don´t know about that, but it certainly seems to be working out for RYAN? I found the various contributions on market makers and accurate pricing of options interesting. Seems we have no agreement here? Earlier this week I did a paper test using some bid ask, 1 cent spreads, for stocks going into earnings report the next day. Today I placed five stocks going into earnings reports tomorrow. The difference between the bid and ask was quite large. Forget how much, but I want to know about how much is already being taken out by the market maker? Learning by doing, rather than theory so to speak. At any rate, by Saturday or Monday I should know the answer to that question, more or less. Trying to find some technical criteria to judge the best stock to bet on. Since I lack the intuitive subjective experience RYAN is drawing on as a modus operendi. I may never find any answer, but am just curious.
Misunderstanding ? ..... Now that's an understatement. Nine Ender obviously isn't firing on all cylinders, he isn't the sharpest pencil in the box.
Stopped out at the open, -11% loss. The worst part is, I know better than to trade puts on Expiration Week, but the R/R was just too tempting.
My sympathies Jeff. Was reading up on trading earnings reports. A lot of studies. One tidbit I picked up someplace, was there are a small bunch of people doing what Ryan is doing and making positively indecent amounts of money. ( depends on your viewpoint of course) My straddles with the wide bid ask spread are predictably losing today so far. Never more, pick stocks with more than 1 to 3 cents between the bid and ask is a new rule now. ( grin ) Wish I could find a report that told me which stocks have 10% swings on earnings reports. Not yet!
falcon, Here is a good mathematical point about a stock with a 10% swing on earning: $50.00 stock times 10% = $5.00 Range = $45 to $55 On something like this you need a straddle with cheap options: $50.00 stock 50 strike call = 1.00 50 stike put = 1.00 Debit...............-2.00 You need to at least get a double on these trades. Stock needs to move to $46 or $54, but $45 or $55 is better because of bid to ask spread and sometimes variable pricing at sale (it doesn't always sell at a black/scholes textbook price). So with that set up above your profitable between $46 to $54. If the straddle debit (call/put total per contract) costs you $4.00 your screwed! No real profit. Need cheap options. If you use a strangle: Stock Price $50.00 52.5 Call Price....$ 1.00 47.5 Put Price.....$ 1.00 Debit..................$ 2.00 Strangle above at a 10% stock move ($45 to $55): At a stock drop to $45 the 47.5% put is worth $2.50 (plus any potential premium = time value left, but time premium value disappears as an option gets deeper in the money). At a stock rise to $55 the $52.5 call is worth $2.50 (plus any potential premium = time value left, but time premium value disappears as an option gets deeper in the money). Any way you look at it, if you have a strangle (even with cheap $1.00 options) and the stock only moves 10% in one direction after earnings your net with only be slightly more than breakeven at best. Back in 1990's my wife and I traded these trying every combination of straddle, strangle, more time, less time, high I.V. options, Low I.V. options. The thing that generated the most consistent performance was 1: Find a stock that historically has high implied volatility, but right now the I.V. is closer to its historically low. This creates cheap options but has the possibility of an I.V. rise to historical norm (high) from some catalyst (like earnings) that hasn't occurred yet. Go to ivolatility.com, become a free member, log in, and then type any stock or index in the quote box (top left of home page). It will give you "current" implied volatility, historical I.V, 52 week low I.V and 52 week high I.V. You want your trade pick closer to the 52 week low I.V. then the 52 week high I.V. Very useful free tool.
Speaking of BIDU. Not recommending a naked position to anyone, but I sold the Mar BIDU 120/150 strangle at 3.06 to open.Vol still needs to come in 500bp.
Speaking of BIDU, did anyone take the puts at the open? I thought it would make a 2-3% move in the same diretion as the move from premarket heading into the open. It opened premarket around 144 and dragged lower to the open at 141, then follows it with a notch lower at 136. As for my first straddle, took a -146 loss on the trade. It was +40 on the call side and -186 on the put side. The bigger loss was my ARUN trade where I took a -400 loss. Brought account down to $8800 and that's where I close out for the week. I just looked at next week, and earnings are pretty much done, there's nothing big left with just a few here and there.....