Leaderboard

we did IBM with options expiring before earnings and GOOG with the short AND long leg AFTER earnings. Both made money, GOOG despite a 4-5% move IBM was between the strikes all the time. Looks like the GOOG style trade is more resilient to moves but depends on the 2w/monthly option to gain more (or lose less) than the weekly option. So we back test for that and pick names that were previously bad candidates for our long straddle strategies as they lost more in decays than IV rose. The IBM style trade is more expensive (in terms of premium) and as the market prices in that there are earnings in the long leg and no earnings in the short leg you depend on the stock not to move - so this is more like a classical calendar maybe with some support from rising IV due to earnings on the long leg.

Not sure whether we have a thread that discusses the strategy in much more detail than whats in the GOOG discussion. As I said before the calendar where the short leg is before the earnings is much more like a traditional calendar e.g. you hope for the stock not to move too much. And maybe you get a bit of tail wind from the fact that the long leg is past earnings and doesn't decay as much as it 'should' or even goes up in value. The calendar where the short leg is past the earnings is much more a vega play so more comparable to the earnings plays we do here. As its long vega you still hope for the IM to go up - as that should increase the value of the calendar, however if the weekly goes up more than the monthly that doesn't work. So I would almost say the post earnings calendar is like our earnings play except we don't hope for a big move (while we can tolerate more of a move than with the pre earnings calendar) and theta is on our side rather than working against us. If a stock is not moving at all that should help the calendar even if the IM play isn't quite working as we hoped. (whereas with a straddle its the opposite, a big move may save you even when the IM goes down) So in a way I think its a good alternative especially for low IV times like now but even in more volatile times I think its a good diversification to the long gamma/short theta plays.

Wayne, That's what I thought as well before digging in to this and getting a bit more familiar. The VIX, as we follow daily, is simply a calculated 30 day implied volatility for the SPX as of today expressed as a percentage. VIX options are based on a calculated 30 day implied volatility for the date of the option. So if you have a Feb/Apr VIX calendar, there are three "VIX" values involved: 1) the current VIX as of today, 2) the VIX future for the February expiration date, and 3) the VIX future for the April expiration date. The three different "VIX" values may not (and most likely will not) be the same. That means that you see today's VIX percentage as one number, another VIX percentage is used as the underlying for your February options, and yet another VIX percentage is used as the underlying for you April options. Quick, significant changes in today's VIX may have siginificantly different changes on the future VIX numbers for the two future dates (i.e. one may change much more significantly than the other, usually the front month). That's why this is a different beast than a normal calendar with stock based options.