The point is that the MM is trading an expectation ( ± average of all bets on all earnings at all strikes on all stocks) and you are taking a wilder shot (one bet) compared to him. But nothing wrong with that.
I trade 8 industries, all names in those industries, and have a professional pricing system. The only flaw is I don't have the ability to price an earnings event which is why I started the thread. I'll be taking many bets as well so the MM and I are on even ground.
IMO, last year's swan dive alterered the "normal" pattern of pre earnings IV expansion. Because IV got so high last fall, we've been in a down trending contraction and in general, the individual spikes have been less since they're swimming upstream. Prior to that effect, if involved in more complex spreads, you could buy long straddles pre EA, catch some of the IV expansion and then sell near term higher IV positions against the long legs. In some cases you could catch some underlying move on the long straddle before selling the short legs. It's still possible to do this but from what I've seen, this pattern is muted. Hopefully it will return as things settle down tho I'd be much happier if we had a repeat of last fall's volatility
I'm reading into this statement a bit, so ... You can't price an earnings event accurately. In more normal years (last year's dive is a problem), you can get a ball park figure by assuming that it will do this quarter what it did in previous quarters (see historical IV graph). You can also estimate that the near month will contract to something a little higher than the 3 rd series out (2nd month teneds to contract more). Where that gets to be a problem is when these two projections differ significantly. But either way, it's a volatility "estimate" and you have to assume a small range of error when modeling potential positions.
Nah, I'm just your every day meat and potatoes retail trader who knows a little too much for his own good But I do trade volatility for selective EA's.
Actually, now that I think about it, this should be doable, in a simplistic sorta way. You just assign custom weights to appropriate dates and use them for any interpolations you need to perform. The weights can be based on historical estimates or you can probably calibrate them to mkt prices. These simple solutions are practiced by gamma people in the world of rates. My guess is that similar approaches are used in OTC equity derivatives.