I was referring to selling the straddle to close if no outlier is seen, not selling the straddle to open a position.
There is one option seminar which focus on gapping analysis, It's very famous www.freely.com I want to know whether it's good or not, but looking at all the testimonial there, makes me.. hmmmm
As with any other method this can be a highly profitable method. I have a friend that has made hundreds of thousands of dollars buying options the day before earnings when he felt the Implied volatility was too low. The most difficult part he said was developing a list to use. Once you got a list of the "usual suspects" so to speak it gets to be a much shorter process.
Clemen Chang (Freely's boss) is very busy and make good fortune on selling how to make money through gapping analysis. He sells USD2 K for 3 days course in Indonesia. I was in one of his overview class. Some made big profits but most were not. He linked earning report to internal report. I followed his theory three time. Once made money...the two not...total loss...
I have to concur with the first poster. You don't want to hold onto that vol overnight. No matter which way the earnings go, vol will be smashed and the ATM straddle will open much lower than the night before. Barring a major catastrophe in the earnings, holding vol after the bell rings on earnings is usually a loser.
I'm not sure if I understand clearly what you are saying ( looks like few diff strategies got mixed up here in my , atty's and your posts). Buying TARGET vols at some point after the open can be ( and very often IS) a huge winner.
Whaaaaat? Lose on vega, earn on gamma. Have you seen the action on BIDU, AMZN, etc...? One of those makes up for 6-10 flat openings.
IV, What do you mean when you say "buying TARGET vols"? I assume you mean volatility, but I am not sure what TARGET means. Also when you say after the open I assume you mean after earnings release, right? Don