You have no idea what will happen a few days after earnings, all the play is the vol crush. For me it is the vol skew so I play the ATM calendar in this case, $40.50 calendar is like $0.14. But if you short the straddle, you get out after the open when the vol crush and the market is fighting over the news/direction and theta keeps helping. Stock could churn or run, but I would be out.
Things are related. In your example, you won't find a straddle pricing 6% move with ambient vol of 50%. It just won't happen. This is why for me, it is much easier to look at the straddle price and compare it to previous cycles prices and previous cycles post earnings moves. IV will ALWAYS increase before earnings - but this is not what really matters. The only thing that matters is the straddle price and the straddle price chart because it shows you 1) if the straddle price is cheap and 2) if the straddle price keep its value well (meaning it is offsetting the negative theta). Each stock is different. For some stocks straddle price keep value well - this is where we go long. For others, not so much - this is where we short the front month (with calendar, not short straddle).
Macy's announce BEFORE market on 8/15. Even better as you can cover at the open and not wait overnight for light volume post market stock swings.
Can someone check these returns please. I am not getting why the May 16,2018 post earnings open is 6.78%. If it closes 29.63 pre-earnings and it open next day at 31.96.. (31.96-29.63)/(29.63)= 7.8%. What did i miss?
Yea, I think the play here is short the straddle into earnings. Cover in the morning and add along straddle (if gap is small).
Well that second part is out of my pay grade because I think that is more just a coin toss guess. I don't know where the stock is going in the next few weeks, I just want to play the vol crush .
DDS August 17th ATM straddle @ $9.50 possibly (wider b/a) and vols are 88%. THose vols should come down to 70% after earnings...
In most cases maybe, but one huge move can erase months of gains. But I'm not talking about holding through earnings. The post earnings history moves are relevant because they indicate how much the options market is willing to pay for the straddle. If most previous post earnings moves exceeded 10%, it is unlikely that the straddle price will be much lower than 10% before earnings. Now, if you are talking about selling straddle with intention to hold through earnings - this is a completely different animal. You might have an edge here as most of the time, the implied move is overpriced before earnings - but tell this to traders who sold naked straddles before last FB earnings. I thought this whole discussion was about buying or selling straddles few days before the event and closing BEFORE the event. If the intention is to close after the event, it's a completely different game. Personally, I NEVER do it. To me, it's pure gambling.
Well we can actually solve for what it would be after earnings. (This would be assuming a normal ie.NOT facebook earnings). Give me a second and I will let you know.