I've decided to publicly note some trades I am making this year. Specially IV crush around earnings. If anyone needs glossary or how it works, let me know. There have been better teachers than me who have explained it well!
# Research (20 days before earning):
Ideally I research these points 15/20 days before earnings:
1. Historic move, how much does it drop / rise a day after earnings. AND how much does it move two days after earnings (important later).
2. IV and historic moving IV 10 day, 30 day for 6 months. Gives an idea how
For example, 15 Apr Earnings prices
14th April price C379 15th April price C375 16th April price C363 (-11)
No data on ATM straddle price. Ideally, I would check on some paid platform but let's assume we don't need another platform.
ON IBKR I see the Historical Volatility change from 15th April to 16th April after earnings. Drop isn't that great on graph, but let's see what we can find next.
Line in yellow is 10 day moving avg. White line is IV as captured for ALL strikes, ALL contracts, in the past 7 months. Diluted info.
[15th April IV was 45% \(for the day, across all strikes, dates\)](https://preview.redd.it/nsd1rb847mdh1.png?width=1483&format=png&auto=webp&s=29746166c3ca1ea5b70860cc8cb17b64adbe241b)
[16th April IV was 41% \(for the day, across all strikes, dates\)](https://preview.redd.it/le4amb847mdh1.png?width=1497&format=png&auto=webp&s=1276fc51c4e8a0dd5af4d24f4eeda44dc4619d95)
\*\*45% to 41%\*\* seems like a drop, but this data is incomplete!
Let's see what did the latest one-day before IV looked like.
**15th July Historical Vol**
[50% for 15th July](https://preview.redd.it/4xtb5e9eamdh1.png?width=1492&format=png&auto=webp&s=226be1e4ec6a16f338c4759c8b51ad9886d3c9d2)
\*\*Let's look at the historic IV for the contracts I am interested in! The line in yellow below is the the July 17th contracts for all strikes\*\*
[17th July Contracts are at a collective IV of 65%, Front month 14th Aug contracts and Sep are 50%, 48%.](https://preview.redd.it/ba5tque5bmdh1.png?width=719&format=png&auto=webp&s=d3071843e5eb97dd165e29500bc28ed4d05b66e3)
Ok, compared to front months, it looks elevated. Good to go ahead (carefully).
**Setup (day before earnings, July 16):**
* TSM at $424.81, earnings that morning
* Day's IV for 17th July contracts specifically strike price at spot: 74% → next expiry (9 days out) IV: 54%
* ATM Short Straddle price (425 strike): **\~$19.70 Credit**
* Market pricing a move of +/- 20
* I'm **not comfortable with Straddles** for regime specific tickers (temporary correction on semi/mem)
* Build a strangle instead. Sell the 405 put / 445 call!
* Credit: $6.40. Risking capital for 6.40 and at 80% surety.
* That gave me a "safe zone" of **$405 (-6.4)–$445(+6.4)** for the stock to land in!
* **I didn't place the trade**
**Why I didn't take it:** Got pulled into a meeting and busy writing these notes in the morning. Plus, the 6.40 credit didn't seem **good enough** to take this trade.
**What happened:** Stock dropped overnight, touched $405 almost exactly (just "kissed" the line), then bounced back the next morning. **IV crush as we can see from 65% to 49% on Jul 16th**.
https://preview.redd.it/1t2xfue5bmdh1.png?width=723&format=png&auto=webp&s=009d0e94e608ae70d8dc8ba95c5b84f9c7fe82ad
Current price of the Strangle as of 16th July 12:30pm: $4.59
**Total win credit: $ 1.81**
**Ideal Result:** Both legs of Short Strangle should be closed the next day, regardless of Fri exp. Would've been a clean win. Textbook case of the market pricing in a bigger move than what actually happened.
**Takeaway:** Earnings and event IV crush works when researched well and sized well. I didn't pull the trigger on this one. Making a habit to publicly log my trades. I will post some of my losing and winning trades later. MSTF last Q was an eye opening experience! It crossed my tight strangle and went ITM but still made a good 40% profit on the overall IV crush.