The secret to buying pre earnings straddles

Discussion in 'Options' started by TheBigShort, Aug 9, 2018.

  1. Many of you are looking to buy the IV ramp into earnings. There is only 1 successful trader I know who can do this on a consistant basis. @Kim Klaiman.

    I am dedicated to starting a trading competition with anyone who can successfully buy the IV ramp. My only strategy will be SELLING the IV ramp. I think something like this could bring alot of insight to many of you (including myself). I highly recommend people like @Kim Klaiman who are successful with this strategy to take 5 minutes out of thier day to post a trade.

    We can go over details in a PM if you are interrested.
     
  2. I presonally prefer the calendar spread if there is a skew in the front month of the IV ramp and play that on the IV collapse. Risk/margin is extremely limited and if the market makes a huge move, the loss is extremely controlled and limited (WING comes to mind). If market IV implodes and stock stays close enough you can usually grab 20-50% return on the calendars.

    Just MHO...
     
  3. traider

    traider

    For many trades, isn't it heavily dependent on fill price since option spreads are huge.
     
  4. Not sure how that is even relevant to everything that was said above...
     
  5. oldmonk

    oldmonk

    This seems like an interesting strategy, but it's difficult to implement without reliable implied vol data.

    What's your data source for the vol skew, term structure, etc.? I've tried livevol but they don't have term structure charts, and the UI is a bit clunky. I'm currently using ORATS vol surfaces, but they use smoothed interpolations, and those are not really relevant to earnings.
     
  6. destriero

    destriero


    I suggest starting with "half lot" synthetics; long 50 spot, long ATM put. There hasn't been a lot of winners in this qtr-cycle. You should look to buy at least a few weeks out and look for some delta accumulation in addition to the vol-ramp. There is no way to lose big in this strat if you're a couple/few weeks out. Arbing synthetic time as the IV has to rally. There really isn't any trick to it--just try and buy vol "swap" as close to pre-report vol as possible. Obv that's a tall order.
     
  7. How much vega do you like to get with these (are you buying expirations that are 1 week apart or 1 month etc..)?
     
  8. destriero

    destriero

    Pre-report calendar is the diametric-trade in terms of gammas. Best when done directionally (dgamma on report side).
     
  9. Hey Des,
    usually once the company confirms the earnings date, the vol is already there. When the earnings date is only an estimate, then yes there is a favorable spread BUT if the estimate date is wrong you will end up losing....
     
  10. destriero

    destriero

    Sure, but more often than not the vol will ramp from say (in GOOGL) 24 to 38 on the penultimate day. The vol as synthetic time. You can't lose on premium with a 14-handle move in vola. It's very hard to lose more than pennies.

    Try it with half lots. Cast the net--do a bunch of half-lots and you'll get a feel for how the ticker behaves before reports. Take notes. Model the vol and the pre-report histories.
     
    #10     Aug 9, 2018
    Adam777 likes this.