Earnings Play with Short Strangle

One of my trades is earnings play using Short Strangle strategy with IV Rank.

During the earnings reporting season, there are always uncertainty to the stocks that going to announce their results. Regardless the earnings results - within expectations or surprises - the implied volatility and IVR most likely will go up each day due to uncertainty right before the announcement. What we can do is to

1) scan stocks with high IVR one trading day before the earnings announcement. I usually look for the stock with IVR 70 or above.

2) ensure the IVR crushed dramatically right after announcement in the last few quarters.

3) only select stock with high liquidity.

4) no dividend or the dividend will be given around 20 days or more after earnings so that I have enough time to BTC (buy to close) the strangle.

5) check the historical gap up /  gap down. Then setup the width of strangle wide enough to avoid potentially tested and try to get at least USD100 premium from this strategy.

6) close the position right after announcement when IVR crushing down. Ideally getting 30 to 50% from max profit.

First, I scan stocks that going to have earnings in the next 2 to 3 bars and with high IVR using the setup here. Then look for those with high IVR above 70..

 Here are two examples: 

1. Micron (MU) was going to announce earnings on 20-Sept_2018 after market closed. On that day, during the market trading hours, I checked the past IVR before and after earnings. 

1 Micron IVR Before Earning

 - IVR was around 30 to 50 in the past.

- IVR always dropped after earnings.

- This time, IVR is highest at 76 (it was 81 after market closed on 20-Sept-2018), so there is high chance IVR will crush after earnings.

3 Micron Strangle

- So on 20-Sept-2018 (US time 2:39pm) / 21-Sept-2018 (MY time 2:39am) I STO (Sell to Open) a strangle at USD1.39.

2 Micron IVR After Earning

 - IVR crushed when market open the next day (21-Sept-2018).

- I BTC (buy to close) the strangle at 0.80.

- Profit at 0.59 (42% of premium).

2. Nike (NKE) was going to announce earnings on 25-Sept_2018 after market closed. On that day, during the market trading hours, I checked the past IVR before and after earning. 

1 NKE IVR Before Earning

 - IVR was above 80 right before earnings in the past.

- IVR always dropped after earnings.

- This time, IVR is highest at 82 (it was also 82 after market closed on 25-Sept-2018), so there is high chance IVR will crush after earning.

3 NKE Strangle

- So on 25-Sept-2018 (US time 1:43pm) / 26-Sept-2018 (MY time 1:43am) I STO (Sell to Open) a strangle at USD1.24.

2 NKE IVR After Earning

 - IVR crushed when market open the next day (21-Sept-2018).

- I BTC (buy to close) the strangle at USD0.60.

- Profit at USD0.64 (51% of premium).

Thank you and happy trading.

 

 

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