i purchased (10)DEC 220 Calls and (10)DEC 95 Puts (strangle) a few days prior to earnings which had a 25% return today. I know this goes against guidelines and the volatility crush limited me to only a 25% return - but a small profit is better than a loss. I sold the 95 Puts today amd kept the 220 Calls since they are nearly worthless. Anyone have thoughts on what if any trade I can place along with the remaining DEC 220 Calls to prevent them from expiring worthless?

Updated by bbuckholz on 11/6/09 8:54 PM

Updated by bbuckholz on 11/6/09 8:55 PM

for a long straddle,
the usual way is to buy equal number of contracts
at ATM strike for the same month.

i think this thinking is wrong.
you should always think of delta neutral position.
ATM call and put may have +0.5 and -0.5 delta
respectively. so, equal number of contracts
works OK for this case at this particular time.
but, if you are dealing with a straddle with a
strike price slightly away from the underlying price,
you will have to deal with deltas other than
+0.5 and -0.5. so, it's important to think
in terms of delta neutral position as opposed to
buying equal number of contracts.

this is especially important if you are holding a
long straddle for some days. as the underlying price
moves, your straddle strike is more away from ATM.
So, re-balancing your straddle is critically important
to make its delta as close to zero as possible.
you may do the re-balancing based on a delta threshold
away from zero value or at some time intervals.

similar logic holds good for a long strangle as well.

i am currently learning options
and never traded an option.
so, please pardon me if i am wrong.

Yes, IV Crush would diminish returns. But when I looked at the current IV chart for FSLR the ATM IV looks low. I back tested having Platinum find a strangle one day prior to earnings for the last 4 earning releases and selected the strangle with the lowest risk. The table below shows only a profit 50% of the time.

earnings
7/30/09 Aug09 175Call/170Put $-448
4/29/09 Jun09 145Call/140Put $+1980
2/24/09 Mar09 125Call/120Put $-460
10/29/08 Nov08 115Call/110Put $+625

I am going to review my ICT recordings as I can't remember how to use the field-> "Apply this IV factor:
to all trade legs above" in Platinum.
Thanks for your insight.

I always recommend NOT buying one day before an earnings announcement because IV usually is too high and you would likely get crushed and make no money or lose a bunch. My recommended buy date for any earnings play is 17 days prior. And sometimes before earnings occur price will do dramatic things and you can make plenty of money by exiting before earnings.

If you have Platinum you can test it out and see for yourself.

FSLR has been trading in a tight range for about 6 weeks, earnings are due on Wed 10/28 after market close, its always a big mover. I am interested in thoughts on a strangle (NOV09 150 Call/NOV 145 Put). Plan would be to place the trade 1 day before earnings and sell the day of earnings. The trade looks profitable roughly above 157 or below 134. Anyone had lots of luck with strangles or for that matter, straddles as well.