Looking for input on this idea - take a straddle on QQQ the day before GOOG or AMZN earnings announcements. Sell the next day. Might this be a decent way to play earnings with a much lower risk? Or do those options increase in volatility (then collapse after) based on the earnings of one mega-giant corp in the index?
They will replicated the basket because of dispersion theory. You lose alpha because as earning are announced, if one NASDAQ company jumps and the other falls, they offset each other on the QQQ. If you are going to buy straddles for earnings because you believe the options are missed priced, QQQ is not a great alternative IMO.
Jeff Augen has a piece on that type of trading.. look him up. you just gave me an idea of a backtest for my "store" ..lol . but I gotta key in these companies manually on a watch list for backtesting an ATM straddle purchase held for 5 days since my system does not scan for fundamental data like earnings date,etc....Intuitively, my guess is gamma rent is gonna be negligible going into earnings.post earnings watch out!
It' true that you will reduce the exposure to IV drop, but you're also limiting your exposure to underlying movement. So you're effectively limiting risk and profit potential at the same time.
yep..I am sure there a some peeps out here who has made a science out of this whole thing.. (ie knowing how many times past years stock has over/undershot the estimate,and consequently the straddle cost, etc) ... you gotta really know your stocks since in some cases, the vols are so high that it is very temping to take the $$ and run (assuming you timed the purchase well) .