I will plan on csco behaving like adbe- volatility and xvalue building going into earnings, then evaporating the next day. am long the April 19 puts, 20 calls. if it looks like adbe, I will probably close the winning side before earnings, and short a different strike against my remaining position-above or below, depending what my misjudgement dictates. with 2 months time left after earnings, lots could happen.
ah, for the good old days, when we could just ride them through earnings! All I know now is that after earnings, the premium disappears....probably!
selling puts is not always the answer, today yes, it would of worked,last week for green mountain coffee it didn't. after earnings the stock could pop either way or just lay there. mr market can be tricky.
good strategy. After seeing adbe options today, I have to rethink my csco March straddle. Was planning to hold through earnings, but after watching this, will probably close one side and spread the other the day BEFORE earnings.
This was a real demo in evaporating extrinsic value.
Another possibility was buying a spread. When ADBE cratered after the last earnings call, I bought the Jan 26 calls and sold the Jan 30s. Despite the rise in stock price for the past couple of months, the value of the spread was increasing only slowly because the large time value in the 30 calls was decreasing very slowly. Today, time values decreased and the spread increased significantly in value.
<<Ofcourse they are down because extrinsic value was high yesterday pre earnings as always. People seldom think about it :) before buying calls. You would have been ok if you would have sold PUTS yesterday :)>>
Bingo. That is why 90% of people that buys options lose.
Yes but as I mentioned before, the 30 calls have been trading at an implied vol in the high 30s, low 40s for the past 2 months pretty steadily, and today they are trading at around 24. Are you saying that the intrinsic value would have been that high that entire time? Still seems like a drastic drop that isn't explained alone by an earnings effect.
Yeah I don't get it, the 30 calls are flat, the 31 calls are down, and the stock is up 5%?!?!? Implied vols were at like 45 yesterday and are getting crushed, down at 23 now. Major WTF... probably a buy though.
Implied volatility was high yesterday because we didn't know what the earnings would be. Now that we know the earings and the forecast, the stock has responded by moving higher. The volitility has come down because there is less uncertainty about the near future. Notice that the volatility has come out of the puts also. Volatility always comes down after a company reports earnings, whether the earnings are good or bad.