An Earnings trade in AUXL – Earnings 5/3/10 BMO

Posted by: Admin: "The Vol_Trader"  //  Category: Earnings Trades, Volatility Trades

I’ve been unusually busy in my ‘real job’ as a physician.  Sorry for not posting in a week…

I spent a little while scanning the LiveVol Pro earnings calendar and found a stock that has performed quite well as far as Vol Crush after earnings.  Looking at the ‘Earnings and Divis’ tab, AUXL has made money five out the past six earnings releases by selling the back month straddle.  See the charts below: (CLICK all pictures to enlarge them)

image

 

image

As you can see by looking at the yellow line in the top row of charts, the $ value of the back month straddle decreased in all except the Oct 2008 earnings release.

Investigating the Oct 2008 release reveals an interesting event.  The IV did not Crush after earnings.  I’m guessing there was a ‘Vol Event’ other than earnings priced in here as this IS a Pharm company.  Also, the stock had a pretty large downward move right before earnings.  You can see in the below 2 year chart of IV that the vol did in fact, not crush at earnings.  This earnings does not seem to have these two factors to deal with from my research.

image

The below Thinkorswim analyze tab is showing the sale of the front month straddle is predicting a move between 31.68 and 38.32 with the underlying currently trading at $35.99.

image

Rather than sell a naked Straddle, I’m going to buy wings and sell an iron condor. Here’s the trade: All options are Jun expiry, back month.  -25 $37.50 call /+25 $40 call /-25 $32.50 put /+25 $30 put for a credit of $1.10 per condor.

The Thinkorswim P&L chart is below:  I like that the breakevens are wider than the predicted front month straddle’s move.  I like that the chart is skewed to allow for a large downside move than upside as I feel the risk is to the downside.

image

I plan on taking all or partial profits immediately after earnings.  Stay tuned for results.

www.livevol.blogspot.com  is a must read if you like my blog. Also, check out www.livevol.com for their software. 

Another must read is www.option911.com . Mark Sebastian is an amazing authority on Vol Trading.

*this is not a trade recommendation.

My First trade posting: (FDO)

Posted by: Admin: "The Vol_Trader"  //  Category: Earnings Trades, Volatility Trades

For my first blog post I’ll attempt to post a trade I put on yesterday and exited today in FDO, Family Dollar, an earnings trade.

The vertical skew in LiveVol Pro looked like this before earnings:

image

As you can see the [red] April options were trading at a significant premium to all back months.  I sold the Apr $38 straddle naked 20 times for $2.20 credit in anticipation of the volatility crush after earnings:

image

As you can see below in the LiveVol Pro software, after earnings Vol in FDO crushes and historically the ATM straddle loses.

image

FDO announced earnings of $0.81.  Premarket shares rose from a prior close of $37.76 too a high of $41 and opened at $39.20.

image

As you can see from the below LiveVol Pro skew chart IV collapsed immediately.  (The red Apr IV moved back down in line with the other back months:

image

Nine minutes into trading I closed the Straddle for a debit of $1.70 for a $0.50 profit on a 20 contract spread, or $1,000.

image

My first blog trade was a profitable one!