SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

How We Nailed The Implied Volatility Game


Oracle (ORCL) has been following a similar pattern in the last few years. They announce their earnings date on the first week of the third month of the quarter and report during the third week of the month. Yet many times the options market "assumes" earnings during the fourth week and under-prices the third week options.

This cycle was no exception. 

It is a well known fact that Implied Volatility of options increases before earnings. We usually take advantage of this phenomenon by buying a straddle option few days before the earnings date.

However, Oracle case was slightly different. As I mentioned, they follow a similar pattern of earnings dates in the last few years (third week of the month), but for some reason, the options market tends to be "surprised" after the earnings date is actually confirmed.


On February 27 I opened ORCL trade discussion topic and posted the following information:

Capture.PNG

My initial intention was to trade the Mar.24 straddle, which would be a safer bet.

However, after checking again the previous cycles and seeing the Mar.17 straddle dipping below $1.45, I decided to take the risk and execute the Mar.17 straddle. The trade has been posted on the forum on Mar.01:

Capture.PNG

I posted the rationale for selecting the Mar.17 expiration, with all supporting information, including the risks:

Capture.PNG

Two days later, Oracle confirmed earnings on Mar.15, as expected.

Capture.PNG

IV of Mar.17 options jumped 4 points after the date has been confirmed, and we closed the trade for 20.1% gain.

Capture.PNG

This is a great example how we make Implied Volatility to work for us. We implement few strategies that take advantage of Implied Volatility changes around the earnings event.

Of course, this trade was not without risks. If earnings were confirmed on week of Mar.24, the Mar.17 straddle could easily lose ~40%. But options trading is a game of probabilities. Based on previous cycles, I estimated that there was ~90% chance that earnings will be on week of Mar.17. Making 20% 9 out of 10 times and losing 40% in one trade still puts you far ahead, with 140% cumulative gain. I also provided members all the necessary information so everyone could make an educated decision.

At SteadyOptions, the learning never stops. If you think education is expensive, try ignorance.
 

Related Articles:

 

How We Trade Straddle Option Strategy
Buying Premium Prior to Earnings
Can We Profit From Volatility Expansion into Earnings
Long Straddle: A Guaranteed Win?
Why We Sell Our Straddles Before Earnings
Options Trading Greeks: Vega For Volatility

 

Want to learn more? We discuss all our trades on our forum.

 

Start Your Free Trial

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Things To Think About Before Getting Involved In Investing

    There are various benefits associated with investing. It can be a great way to boost your income, providing you with financial security during a troubling time. Smart investing also comes with the possibility of long-term returns, meaning it can be better to invest your money than leave it in your regular bank account (even if you are earning interest). 

    By Kim,

    • 0 comments
    • 195 views
  • Micron Technology (MU) Earnings Report June 30, 2022

    Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade. Read on or watch the video overview here: https://youtu.be/IDgR3FzONnI.

    By ORATS_Matt,

    • 0 comments
    • 224 views
  • Does “Managing Winners” Add Value to Short Strangles?

    Some option educators suggest short strangles have historically benefited from actively managed exit strategies. A widely popularized approach is to enter S&P 500 strangles at 45 DTE and exit at 50% of the credit received or a 21 DTE time stop, whichever occurs first.

    By Jesse,

    • 2 comments
    • 4,702 views
  • NKE Earnings Report June 27, 2022

    Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade. Read on or watch the video overview here: https://youtu.be/2mtx2ja-VwQ.

    By ORATS_Matt,

    • 0 comments
    • 233 views
  • KBH Earnings Report June 22, 2022

    Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade.

    Read on or watch here:

    By ORATS_Matt,

    • 0 comments
    • 298 views
  • Know How To Trade Before Making An Investment

    Everyone is searching for a way to improve their living quality. Plenty of scopes are coming to the forefront and people are grabbing the opportunities with the hope of receiving the best revenue against their investment. A share market is a place that can return the high revenue of your investment.

    By Kim,

    • 0 comments
    • 320 views
  • Implied Volatility and Standard Deviation

    1. Isn't holding a naked long call (as a result of locking in a profit or plain buying outright call) in general a bad idea? Reason I think so is because of the nature of IV: it mostly falls when the underlying is rising. So you have short theta and a big long vega moving against you.

    By Mark Wolfinger,

    • 0 comments
    • 300 views
  • Introducing a "Risk Free" Trade

    A few weeks ago, I got the following email from one of our former members: "I would like to share with you an article about "projected no risk trades" or "no risk trades". Of course I was skeptical. But when he shared the setup with me, I became intrigued. How does the following risk profile look to you?

    By Kim,

    • 6 comments
    • 1,392 views
  • What You Trade Matters

    Traders love to tell people that they can trade anything. That if you have the skills to be a trader, the specific item traded is unimportant. That may be true for some professional traders who are skilled technicians. However, it’s very different for gullible amateurs.

    By Mark Wolfinger,

    • 0 comments
    • 633 views
  • The Big Loss

    At his blog, Joey offers his perspective on the top reason that so many trader wannabes are not, and will not, become profitable traders. His post is titled: Learn to Lose Money to Make Money. Here are the Excerpts from the blog.

    By Mark Wolfinger,

    • 0 comments
    • 822 views

  Report Article

We want to hear from you!


Kim, I have lived this phenomenon a number of times already and, as some other situations (Fi Vix futures contango reversion to the spot) make me feel a bit scared. How MM do not correct/factor this "anomalyties" to happen over and over in advance?.

This is a bit more unknown, but Vix contango is known by any trader with some few months of experience.

Share this comment


Link to comment
Share on other sites
Guest Kaustubh

Posted

Hi Kim,

Nice article, 

Does this work for most of stocks?

i.e. Predicting result date based on historical data & buying appropriate expiry straddle few days before date announcement.

Warm Regards,

Kaustubh

 

Share this comment


Link to comment
Share on other sites

Well, for most stocks, the options market gets the date right. There are some opportunities based on wrong earnings dates, but they are not too common.

Share this comment


Link to comment
Share on other sites
Guest Kaustubh

Posted

ok, Tks.

So, A trader should focus on 2 dates : "Date of announcement of earnings date" & "Actual earnings date".

A right approach would be to buy a straddle 2 days before before anticipated "Date of announcement of earnings date" for specific anticipated weekly expiry.

Few other of your articles suggests to buy a straddle 7 days before "Actual earnings date"

Could you please clarify?

Was the "7 days before" approach applicable when weekly stock option were not available?

Warm Regards,

Kaustubh

 

 

 

Share this comment


Link to comment
Share on other sites

Buying 2 days before before anticipated "Date of announcement of earnings date" will work if we have a reason to believe that the options market is wrong about the date (like in ORCL case). In other cases, we enter anywhere from 2 to 10 days before the actual earnings date, depending on prices and backtesting. A lot of effort is placed into backtesting of different scenarios to find the best setups.

Share this comment


Link to comment
Share on other sites

If we had purchased the March 24 straddle for $1.86 (your more conservative trade), how much would we have gained or lost after Oracle's announcement of the earnings date.

Share this comment


Link to comment
Share on other sites


Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs Expertido