![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtLeU_nPwo2aVUo6i2nlRH0utR1GneKHytS4vzlPPCv7-Vug_Dx0DrmTRGqu69OGPveqv1-dmoDWcTz1jfmN7MogXj072HOr4HF26utpZksfBZr8hGBe0ufDHoyOvRei2-41fAORy6KCc/s400/intc_summary.gif)
A simple trading strategy is examined, but first some summary stuff...
The company has traded past its daily average in the first two hours (128,500 vs. 117,100). Calls have traded 2:1 to puts - but there hasn't been a strong directional bias from what I can see today. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEin9WYIM7a-SgN3W-CKFcwfTzyKF-7We3kvHFiqaeHmQru6EpeHiW1Sqnj0TO2TURxrV51FmiQrKANHpMfsHQkoy2J-wRQfW8Wm56wkRuQcWGGMPwnwD-jTMYOkxseXOce7IUVPg0UjWoc/s400/intc_stats.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg18aj5N3nv8s5wyVFkAU1AnDRIiM9IBeej4tzkFOPuNqzPx_uk1afMDMC6_cXG0mPNqdnKbVbaeFxbK9mQQ_ccw3cQml4OkOVGcROeOCDqWeAd-oozfXYb24XdPD6i3Amj4ncIxxuCYgU/s400/intc_trades.gif)
The Options Tab (click to enlarge) illustrates that the Apr ATM options are trading the heaviest (no surprise) with the Apr 23 calls trading nearly 30,000 on over 83,000 OI.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZGwTVlSbySHmntO8PHFYNwEobSIYuFJ3UyYW8VrTpjp9QaGt99C9-MPH4nPC-HvcCRUjBl9UStUKv6b8u-rEcklvxG5mmJ0QESfARiATLlhBCjIyRRHAs1XNE7LKZG5capWmAk1qpRxk/s400/intc_options.gif)
The Skew Tab snaps can behelpful to look at for a visual illustration of the vol rise and crash. The Skew for today first (click to enlarge):
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioIf_pZk3yE3HIOQmojxjvSUiudaNadclV70Nx2MSCb40pEVmPYFV09kuwkdze5zY0tPhC8j_HQCm4a_WNlSMR0vLcleunV9rigU0ccCFsqWertVGi7YXDDUEBsjJxQEUa_MTNRcd2sDE/s400/intc_skew_4-13-10.gif)
Note how much higher the red month (front) is than the rest. Next I have included (click to enlarge) the Skew tab snaps from 1-13-2010 (one before last earnings) and 1-15-2010 (the day after earnings). You can clearly see where front month vol is "probably" heading tomorrow.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_HEQ1r0v7qeIk2Uyw_gKzbYFPDaUcGl8uMZVfEItplfsd9dHHc9Q1d8ok6Z2F-RpYZuzOVBFTDPjwE-xxnFHYI_3dCAcE7X_2HQyd7dhaE0NhJfXiYpk1odXctktcUFFDvu-1rDTqf9o/s400/intc_skew_1-15-2010.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZva0IOAW-qHGQzOdsF9gWaULwkgTckfJs2n8WdL5jy3kHXVE3G4PqUoOahlz3fe4BE7MUU8C6lcq4gXucLkSjp9pw3Uzt6uyff96pMIC93IaPQCeX1n5x7-Gx-V6RhmUiLOtJi4j4GbM/s400/intc_skew_1-13-2010.gif)
Now just becasue vol crushes after earnings - DOES NOT mean it's an automatic sale. Vol can go down and a stock can move huge. In fact, that's more the rule than the exception. Vol goes down b/c news is out - but stock moves size due to the news.
I took a look at a simple strategy with INTC - sell the second month straddle the day of earnings and buy it back the next day no matter what. I used close to close values - i.e. sell the straddle at theoretical fair value (mid-market) right at the close then buy it back the next day right at the close. Since INTC has penny wide markets - the slippage is minimal i.e. fair value is sort of realistic. You can see what I found below.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY8RIo0w0lu8665QkQ1vwWJM3-GUvVmkQanVx0N0CNzJkeLHiZn0P6wvecd32cAuPTw9TXpsb3VK7vEV7Rf-FI6PdexiPFvlH2V_swiuYRp3DyB3JvawokkAjaRLTbfWhU3SVVgY3Epko/s400/intc_earnings_calcs.gif)
In 7 out of the last 8 earnings cycles, that strategy was a winner. Max gain was 26% in one day, max loss was 37%. The gains other than the outlier were actually in a tight range: 13%-20%. The loss was the largest absolute move. In all, the move generated 10% average daily returns ex-commissions and slippage.
Of course, if the strategy loses 37% again this cycle, then the strategy in total is barely a winner - and barely a winner for shorting earnings straddles doesn't like much fun to me in terms of risk:reward.
Another BIG thing to keep in mind - checking out the Options Tab (above) you can see the May 23 starddle is priced at 27 vol. That's the lowest second month vol one day pre-earnings in the last 8 cycles (from what I see). So, basically... a vol sale looks less tastey...
BIG CAVEATS:
(1) I tried to be careful with my calculations but they aren't guaranteed! Use your Livevol Pro and verify, verify, verify...
(2) This is trade analysis, not a recommendation!
Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html
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