TCB - Earnings Perview and Vol Pattern

Discussion in 'Options' started by livevol_ophir, Jul 14, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    TCB is trading $17.16 with IV30&#8482 up 10.2% today and earnings BMO tomorrow.

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    The Options Tab snap (<a href="">in the article</a>) demonstrates a couple of things:
    1) The front month ATM straddle is worth ~$0.95.
    2) The front month vol (88) is 46 points above the second months (42) because expo is so close and everything is just earnings vol.

    TCB has followed a consistent pattern for five out of the last six earnings starting with the 1-22-2009 cycle and ending with the last earnings cycle on 4-22-2010. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner five times. The Earnings & Dividends Tab for those cycles is included with the relevant values highlighted (<a href="">in the article</a>).

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    <b>What we're lookin' at:</b>
    (1) The top ROW is TCB stock price 5 trading days before earnings through 5 trading days after.
    (2) The second ROW are the front 2 month ATM straddles for the same period - focus on purple - the front month.
    (3) The third ROW is the implied vol for those straddles - focus on the red - the front month. NOTE: The red line always collapses after earnings - this is called the vol crush after earnings.

    The trade statistics for the straddle sale and purchase a day later are included (<a href="">in the article</a>).

    We can see that even though it was a winner 5/6 times; the average win is pretty small (and this doesn't include commissions) because of a big loser on 10-21-2009. The stock gapped and the ATM front straddle went up in value to parity (even though there was a vol crush, stock moved).

    Again, since expo is Friday, and earnings are Thursday morning, this is essentially pure earnings vol in the options. A $1.00 sale seems like it could be worth a small bet for the gambling type.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, charts here: