Tuesday, July 27, 2010

Broadcom (BRCM) - Earnings Preview; Vol Pattern and Straddle Sale

BRCM is trading $37.91 with IV30™ up 4.5% and earnings AMC today. The LIVEVOL™ Pro Summary is below.

The Options Tab snap (click to enlarge) demonstrates a couple of things:

1) The front month ATM straddle is worth ~$3.31.
2) The front month vol (43.16) is 5 points above the second month (38.23) because of earnings vol.

The HV90™ (longish term historical movement of the stock) is ~36, so the 43 vol in the front month is elevated.

BRCM has followed a consistent pattern for seven out of the last eight earnings starting with the 10-21-2008 cycle and ending with the last earnings cycle on 4-27-2010. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner seven times. The Earnings & Dividends Tab for those cycles is included with the relevant values highlighted (click to enlarge).

What we're lookin' at:
(1) The top ROW is BRCM 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).

We can see that the one loser was very small ($0.02). On average it's a 21% one day win.

Finally, the Skew Tab snap (click to enlarge) illustrates high elevated the front month vol and skew are relative to the other months.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. are you aware of any info that is to come out with these earnings?

  2. I don't know anything really other than the date (today) and the time (AMC).

  3. Typically when a sale or purchase is predicted, is it better to enter at EOD, as the atm may change?

  4. yes, I like waiting to make sure. Very good point. For purposes of the blog, I like to get a trade out early, so I need to post early.

  5. would it not be better to sell the $37 Put and $38 Call?

  6. A strangle can work very well; sure, same concept.

  7. but where will the VOL collapse more under which strike price?

  8. This strategy focuses on the ATM strike.

  9. is $38 the mark you are going with?

  10. $38 looks like ATM. I can't recommend that you do the trade though; that's not allowed, nor would I want to even if it was allowed. Ok...

  11. it's now going for 10% less then what you posted this morning
    i wonder how it will turn out because your numbers can be ......

  12. I'll post an update tomorrow morning; maybe an hour after the open to see how it went.