Apollo (APOL) - Earnings Vol Trade and Analysis

APOL is trading $49.93, down small with IV30™ down 1.6%. The LIVEVOL™ Pro Summary is below.



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APOL has earnings today, AMC. I have included the earnings stats for the last 8 cycles for APOL (below).



What We're Lookin' At:
The result of a simple trade: Sell the ATM straddle the day before earnings, and buy it back the day after. We can see that the straddles are pretty fairly priced as a sale was a winner 4/8 times and a purchase was a winner the other 4/8 times. The average is for the sale to win a 4% gain, which is pretty small given the risk of a short earnings straddle.

Also look at the "ATM Straddle IV" column. The average ATM vol the day before has been 74.63%, with a low of 50.58%. More on that in a sec. Let's look to the Options Tab (below).



We can see the ATM straddle is trading at ~ 118 vol, with mid-market ~ $3.65. Keep in mind, the 118 vol isn't really a fair comparison to the other vols b/c expo is only three days away. That means the vol is almost entirely earnings related with no "dilution" of "normal" trading days. For a better explanation of this phenomenon, you can read the article I write for Bernie Schaeffer's mag, "Sentiment" here:Sentiment Magazine. Page 25-26, and check out the section "Scheduled Volatility Events."

So, now what?...

Possible Trades to Analyze
1. Sell the ATM straddle @ $3.65 and hold on for dear life. Very risky... This is a pure short gamma trade.

2. Make a delta bet and a vol bet. The for-profit education companies have been on an upswing of late. Sell the 50 puts @ $1.85, leave just one sided risk.

3. Sell the 49/50 put spread @ $0.50 or better (not easy to get those prices). Then you have a 1:1 MaxLoss:MaxGain ratio, and you get to take a stand on the earnings vol. Keep in mind, you could buy the spread and make the opposite bet. I like the sale of put spreads the best.

I am tantalized by the Oct 48/50 1 x 2 put spread - buy 1 Oct 50 put, sell 2 Oct 48 puts @ ~$0.15 net credit. Note the naked downside though below $46.

These are all very risky. This would be a pure speculation play, not an "investment."

This is trade analysis, not a recommendation.

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