r/options
Oracle $ORCL Vol Crush Post Mortem - This one goes into the win column!
Author shares a profitable options trade on $ORCL post-earnings amid a $20B AI stock issuance, and plans to trade $ADBE next.
https://preview.redd.it/hz45hl5rtn6h1.png?width=1388&format=png&auto=webp&s=c19b5c3f4ce984268abbdc990f1d4a267d1d8c5b
Yesterday, I posted about an EA Vol Crust Trade on $ORCL.
My thesis was that the market was underpricing the expected move, and even with the expected Vol Crush, IV was cheap, so I put on a non-directional long IC.
After the bell $ORCL announced and had a massive beat. Market goes bid, right? Not so fast. They also announced a $20 billion stock issuance to pay for AI build out, and so the stock immediately traded off.
The initial move was down, -8 to -8.5% not enough for my puts to be ITM. However, as always, it ain't over until after the next morning's price discovery. I always wait until at least 9:45 before I exit the trade, as at that point the market has settled in, bid-ask spreads have tightened, and full vol crush has not yet set in.
Right on cue, by 9.45 $ORCL fell to a low of $175, well below the strikes of my debit put spread, so time to take profit.
I open the trade at a $2.45, exited at a $2.68 credit, booking a solid gain. The capital at risk on the trade was $2.55, so the $0.23 cent profit generated a 9% return in about 18 hours. I allocated 1% of capital to the trade, so 9bp return to my book.
Not a home run by any means, but slow and steady wins the race. This trade further validates my thesis and process, so on to the next one!
$ADBE on tap for EA post-close today. We'll see what the numbers tell me and will trade accordingly.
Sounds like the juice isn’t worth the squeeze unless I’m misunderstanding..
These trades have asymmetrical payoffs. If the number blew through the strikes, it would have generated at least 100% returns. Of course, that doesn't happen all the time, but when it does, it's more than worthwhile. Overall, the strategy generates 35-45% returns per year, with zero correlation to the market and a very high Sharpe Ratio. You can't judge the strategy on a single trade.
9% in a day is worth it.
agree - some folks swing for the fences - no doubt they have some big winners. but also big losers.
that's not my style. slow a steady for me! no anxiety, no sleepless nights, and I can do this for a long time without the emotional toll the majority of traders experience.
the word crush definitely stands out there
"I allocated 1% of capital to the trade"
LMFO. Jeez, so you have 100 of these going at any one time?
Nope. I trade about \~80 EA per quarter. My winners range from 3% to 276%, avg 57%. Losers -1% to -83%, avg -40%.
54% win rate so expectancy = +12%/trade x 1% x 80 x 4 = 38%/year.
I'm all about risk control, steady, low vol returns, high Sharpe, zero beta.
But hey, that's just me. If you have a strategy that generates 38%+/year pure alpha would love to hear about it!
What’s the timeframe on this, how long have you been doing this strategy?
Developed the strategy 18 months ago, with some minor tweaks along the way. Fully locked down now for 4 quarters of trading. Consistent results in each of the 4 Qs
Well done. Home runs are rare, hitting singles all day is what gets most into the HoF. Ok, I’m out of baseball analogies.
What made you think IV was underpriced? You state it here and in your original thread. Is it just because the market had underpriced vol for Oracle’s previous recent earnings?
glad someone said this. been thinking the same thing for a while.
appreciate the honest breakdown. most people sugarcoat this kind of thing.
Thanks bro!
Username checked out. I did the same thing but only on the sell side when IV is expensive with double calendar strangle debit spread. This is more efficient than short/long vol over period of time. I want to win or lose fast so I can move on to the next one.
On average the market overprices the implied move 65% of the time, so no argument with your short bias. And it's smart to use the calendar strangles rather than just naked short.
If you don't mind me asking, do you calculate vol crush in structuring your trades? And what metrics do you use to conclude vol is expensive?
I don't calculate vol crush because it's kind of impossible to predict the fuckery in first 15 min at open like you noted. Price maybe in range overnight but drop like a rock/shoot up like rocket at open or vice versa. I saw some wild stuff happened, like price stand still ATM on Costco in last Q3 or 2SD move down in Nike at open. There is no way to predict that.
Like a lot of people here criticize you or in the ADBE thread (not sure where I see which one), if you just sell every earning, statistically implied move is overpriced but in long term, you will be in negative (IV not crushed as much as needed, slippage, fee, etc). You have to make your win amount and chance a little bit better to offset those overhead. I use a few thing to stack my odd against the inevitable coin flip:
- VRP must be positive. Otherwise, you're not compensated enough for the risk.
- IV have to be in backwardation, preferable steep IV term structure vs IV term structure without the earning. You need historical data for this to deduce the IV without earning.
- Options volume has to be over 10k or you will have problem closing your spread at open at favorable price.
So I use 3 moves: Implied move, average move, and average implied move. The last 2 will need historical data. Average implied move has to be bigger than average move. Implied move can be equal to average implied move but I prefer it be higher to make it worthwhile. That's how I decide it's expensive or not to short or long. I don't usually long because you have to be right about the direction, magnitude of the the move and hope it's there overnight or magically happen at open. Also those moves are correlated to quarters instead of annual average of all earning.
Sound approach. Thanks for sharing. Very similar to what I do.
And yes, never count your winners/losers based on the ON action. The open is a whole different world.
why would you buy iv right before it crashes? what's the rationale here, I don't get it
Let me ask you this - if you know it's going to always crash, why not always just sell vol?
Because if the market is wrong and the stock moves more than implied by the options market, sellers will lose big.
My game is to handicap when the market is "wrong" and the move is greater than implied. If I'm right. I make money. If I'm wrong I lose money.
But I will also play it from the short side, meaning if my forecast for the move is less than the market's, I'll go short vol.
On average, the market overprices IV 65% of the time. But a short only strategy is a breakeven proposition at best because of the asymmetrical payoff when the market doesn't get it right.
Hope this helps!
On short vol there is more opportunities to manage trade, imho
Yeah it can get tested but there is time buffer, and the premium buffer. It can get rolled. Or take shares assigned.
I would never roll. I trade the event. It's a binary outcome. If I win I win. If I lose I lose. Then on to the next trade
Nice result. The part that gets lost in win column post mortems is which breakevens you are measuring against. Pre print your long structure has fat implied baked in, so the breakevens look wide. Once the crush hits, IV resets and the breakevens pull inward overnight, so a print that looked like a clean winner can land between your crushed breakevens if you are slow to exit. The expectancy you posted only holds because you are sizing at 1% and running enough trades for the law of large numbers to do the work. On any single trade the distribution is brutal. The edge was never the crush itself, it was the market underpricing realized versus the implied that survives the crush. Curious whether you exit at the open or wait for IV to fully bleed before closing the residual.
Always exit on the open-ish - 9:45 - 10 am after price discovery occurs and bid/ask spreads tighten. I'm only playing the event - not PEAD.
If I'm long vol and market move is muted, I'll work my exit more aggressively. If I'm short vol, I'll do the opposite.
Nice post-mortem. The key with earnings vol-crush trades is not just that IV dropped; it is whether the realized move stayed inside the structure you sold. I would log expected move, strikes versus expected move, credit received, max loss, exit rule, and what the trade would have looked like if ORCL opened outside the range. That tells you whether it was good pricing or just a good outcome.
yep - do all of that and then some.
Please port your adobe setup ahead of their earnings so the inspired can piggyback
just did!
real talk, this is solid. more people need to hear this.
most folks on here are all about high win rates, big tail risk, swinging for the fences. Glad they exist - I need them to provide me alpha!
Removed for RULE: No journaling of trades or blogging: why & how are more important than what & when
Everyone wants to show their day-by-day or hour-by-hour trading journey, but this is not the appropriate place for such sharing. What was traded is less interesting than how and why those kinds of trades were made. Posts that are mostly just a list of gains, losses, or a list of trades, or trade images without substantial discussion of why and how, or a repeating series of posts as if you were blogging, are taken down.
ORCL'ın bulut segmenti büyümeye devam etse de, bu büyümenin piyasa beklentilerini karşılamaması fiyatlamada etkili oldu. Özellikle Azure ve AWS gibi rakiplerle kıyaslandığında, Oracle'ın bulut operasyonlarındaki momentumu yakından izlemek gerekiyor. Bilançoda bu detaylara odaklanmak, hissenin gelecekteki potansiyeline dair daha net bir resim sunar.