![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTt8ZVKxxIQmzeihxB7jCf7b6Q6Ei8o9EfNSd-mw_BwPYrz7DYd_pQf1CyY6tnQXnAVD6A-dzrGUjMf0wiqenGB_NlCNEygLIFj1yCVGrBkeWrUrH8SKAVFO9WtdoBxYqqwDxUIkM0cB9y/s400/aa_summary.gif)
AA has earnings today after market close (AMC). The ATM straddle in July is worth $0.82 with front month ATM vol at 86. The Options Tab is included (click to enlarge).
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLWrdUSDVd3li9R7Lp7Srx_9Mfouta2iNPHCsDl7fRlEvDGz3A9MIebpTSKBcyBgEgUi1Y45Pm1G1rU8iYmpEsfO7kgXcI4H67qeXeMzAeCQVWzWnpUSpS__bkShd_eKgyCe-lBBJ7hP6r/s400/aa_options.gif)
AA has followed a consistent earnings pattern for four out of the last five earnings starting with the 4-7-2009 cycle and ending with the last earnings cycle on 4-12-2010. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner each time. The Earnings & Dividends Tab for those cycles is included with the relevant values highlighted (click to enlarge).
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSp0DYPnRDOPuXxcS6GgnbeHteqfoXmysAanleVKMB9-0MZIzln1HAkI0Wf3isiEEHGH8_PQmduS9TLunx0NCf_taGi355fSa5Y_57E-VIJUMTI0fg-bXjGaFPRSdNZPPTllqf_U0HZ8b1/s400/aa_ed_older.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiB_F7-qrLpoFEbosbe7nAIGnyGIx8_kTMy3hjXYFGQrg5rIutDxd3nUkmRh73FYEu5bhN4Yu-R474VFoSLwN9yc1900q05ZmMfSLLTIZVCRQLqR7QfbqWL8Kcuw7XKyjytYAPFXQhWdSJu/s400/aa_ed_recent.gif)
What we're lookin' at:
(1) The top ROW is AA stock price 5 trading days before earnings through 5 trading days after.
(2) The second ROW are the front 2 month ATM straddles for the same period - focus on purple - the front month.
(3) The third ROW is the implied vol for those straddles - focus on the red - the front month. NOTE: The red line always collapses after earnings - this is called the vol crush after earnings.
The trade statistics for the straddle sale and purchase a day later are included (click to enlarge).
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRW3UUn9SW5d8lBU7UaRQqLKcV_ShKLY_LeDCVLkPMdmEETSy07zp05gkiGgNyhPNEd4Xk3y18HtvN24qM5EitBf7MoVj186yI425VpCatGlUEYHJiwrv5nIxe0F0-LtZHv7ukdOuIuZB6/s400/aa_ed_stats_7-12-10.gif)
We can see that the one day trade averages a 21% one day return, with the worst day being the 10-7-2009 cycle; a 1% loss. Keep in mind, these trades do NOT include commissions which will have a substantive impact on the results as the average change in value for the straddles is just $0.31.
It will be interesting to see what AA does this cycle. A couple notable phenomenon:
1) The $0.82 fair value for the ATM straddle today is the lowest it has ever been in absolute dollar terms.
2) Options expiration is this Friday, so this is almost a pure earnings play; not a lot of theta to worry about.
3) Selling the 11 straddle wins max gain if the stock goes up from here. If you want to sell the vol and make a directional bet, sell the straddle where you think the stock is going. i.e. if you think it's going to $10 at expo, sell that straddle instead.
This is trade analysis, not a recommendation.
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