r/options
Oracle $ORCL earnings tonight after the bell? Who's jumping into the Vol Crush pond with me?!
Author plans to buy $ORCL options ahead of earnings, arguing implied volatility is cheap and the market historically underestimates it.
- Implied volatility is cheap relative to historical standard deviation, offering a high expected value trade.
- Historically, the market underestimates $ORCL's actual post-earnings price movement about 91% of the time.
- The defined risk trade setup provides a highly attractive reward-to-risk ratio for the earnings event.
- Volatility crush post-earnings is estimated at 8.5 points, which poses a risk to long option premiums.
- Many market participants are selling options, indicating differing market expectations and potential smart money resistance.
- If the stock's actual move is muted, the time decay and volatility drop will result in a total loss of the premium paid.
https://preview.redd.it/820j53jkgh6h1.png?width=1345&format=png&auto=webp&s=561273de2e2cba8cd95e1cec26fef0c023330d2c
EA trades are my favorite set-up. This time of year, there are few and far between EA to play, but today I'm anxiously awaiting $ORCL earnings.
My assessment: IV is cheap, so I'm play it from the long side.
- While the implied move unadjusted for Vol Crush is nearly 13%, my estimate for Vol Crush is about 8.5 points. Therefore, Vol Crush adjusted IV, factoring historical standard deviation of returns with a 68% CI, is cheap at roughly 10%.
- The above graph plots historical $ORCL earnings moves, both for the opening gap and close-to-close versus expected moves. As you can see, about 91% of the time, the market underestimates the actual move.
- I can put on a defined risk trade with a very attractive reward to risk ratio, resulting in a high EV outcome.
Trade will be opened going into today's close. Then see what happens after the EA and conference call, wait until around 9:45 a.m. tomorrow after price discovery occurs, and exit the trade, win or lose.
I expect lots of folks to take the opposite side of this trade, which is fine by me. The more sellers that I can buy from, the better!
Happy trading!
Rip
\-8.5%
Smartest idiot - after all.
https://preview.redd.it/i6ln4ig9ui6h1.jpeg?width=1179&format=pjpg&auto=webp&s=a10430211b1d5912cb73d27cde6fc0fd4c659ce6
Idk man. Doesn’t look good for your calls
That's why I don't play directional. I'm long both puts and calls so I can profit regardless of the market moves up or down. I'm betting on the magnitude of the move versus the implied move, not direction. Implied move, less Vol Crrush. If I'm right, I make money; if I'm wrong, I lose. Simple as that.
You’re long a straddle. That’s not a mysterious play. The $200 straddle expiring tomorrow was $26.57 at the close. Stock is down $17.20 right now.
I don’t think this is going to be a profitable trade here.
nope. Long an IC $2.45 debit. put strikes of 182.5/177.5 calls went to $0. Closed puts for $2.65. Not a home run. But still a winner.
Last minute decided to go with puts only.
you are the winner
what is EA in this context?
It’s in the game!
EA Sports man
lol I could t get past that. I knew we were talking earnings, just didn't put it together
Earnings Announcement
Use ER.
I'll be playing both ends. The only way I lose is if it remains flats tomorrow.
still better than what i did, saw the initial dump, wanted to buy in but was late, it bounced back to 200.
I got FOMO and tried buying into the next drop, lost 200, even though saw a small gain but wanted more lol
then tried again around 190 but didn't have my nerves and lost another 100. though at least i closed the position as it settled at 180
now, bought 20 shares at 180 in case it does bounce as my put calendar is at 175/180 - so to lock in some profits (also have a 150 put for September)
came here to say something similar. you nailed it.
https://preview.redd.it/vyselqyusk6h1.jpeg?width=1179&format=pjpg&auto=webp&s=00c360d6ce7aac9dbafbce71f71a7c0820f5ea04
Am I cooked? How much will these be down tomorrow?
Damn bro I felt the same pain last Friday when the market got hit
No way to know at this point. ON prices have been all over the place
My calls are cooked
Hard to get the direction right on EA. I always play non - directional, based on cheapness/richness of IV.
Position?
Long 177.5/182.5 - 222.5/227.5 IC. Will have to see what happens on the open
I bot a $95 put last week or so. See what tomorrow brings.
Worth separating two different things that both happened tonight. The vol crush part of the thesis was fine, IV always bleeds after the print. But the move was not an earnings reaction, it was a balance sheet event, the 40B raise. That is a different axis than the implied move math, and it is exactly the kind of fast repricing a long gamma structure wants. If you were long the move you were not run over by it, you were paid by it. The people who get hurt on nights like this are the ones short premium betting the stock stays inside the straddle.
Yup. Still TBD what the final outcome will be. Until price discovery occurs 9:30-9:45 tomorrow am anything can hap. But for the time being anyways, I'm glad I'm not short!
That’s a wide calendar spread. Do you normally go that wide?
i'm just learning but went for the expected move border 180/240 and wanted to give a spread for potential extra income
Oracle seems to be trading between 180-190 this morning, we will see how the double calendar gets priced after open
i'm also experimenting with doubles on QQQ and SPY, QQQ worked out better so far - it has more stable volatility for both up and downside so maybe will stick with it
Look at double calendars before and after earnings. Never hold through earnings.
You can backtest before earnings trades and get a sense of what a good entry price looks like and what a good sell price looks like.
my ORCL double calendar is currently positive but slightly and very gamma sensitive, a spike up to the north of 180 and all gains lost