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:
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:
As you can see below in the LiveVol Pro software, after earnings Vol in FDO crushes and historically the ATM straddle loses.
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.
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:
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.
My first blog trade was a profitable one!