**Thesis and Setup for Friday (Oct 2) contract**
My profit source is IV crush. After earnings, implied volatility drops and the short option legs lose value, so I can close them for a profit. A change here is that I am good to own MU at the strike of selection for a few days / weeks.
In the past, MU has moved an average (n=12) of -6.7% on down days and +12.7% up **on the day after earnings**. The min max range is -16.5% to +15.7%. The upside moves are larger, so upside is the main risk. Recently, past 4 earnings, were about +16%, -4%, +10% and -2.8%.
**Observations as of today, Tuesday Sep 29**
Spot price about $1,070 as of 12:28pm.
Today, the options market is pricing a move of ±$82.8 (the ATM straddle). So a change of 7.6% is expected, either up or down as per the Friday Oct 2nd contract. ATM IV is 104.5%.
At 1072.5 strike, the straddle is also priced at ±$83.
Expected move as of Tuesday 12:28pm for Friday contract: 987 to 1153.
[1153 to 987 as per ATM straddle price \(+\/- $83\)](https://preview.redd.it/40ujo6fjwhsh1.png?width=542&format=png&auto=webp&s=c2c51e1b9255d2d0aa351f211a896dd5e8cbc755)
MU IVR at 26 and 52 weeks is about 16 and 20 respectively, but this is because of the YTD run up and volatility overall.
Front month Vol is lower than event vol of Oct 2nd (97% vs 61.5%).
[Honestly, not as high as I expected.](https://preview.redd.it/k554872qwhsh1.png?width=723&format=png&auto=webp&s=7fb8b49e22ab16a9cb4ddfe43d8b1161346860da)
**Setup for tomorrow's trade**
*Short strangle around the edges of expected move, with a protective long call*
Tomorrow, I plan on shorting the put at 985 (delta .17) or 1000 (delta .22), which is about 6.5% to 7.8% below the current price. For today I check 1000 because of higher option volume. At risk, USD $100,000 (minus credit). 1000 short put is $13.45 today. Put side IV 99.5%
Call would be a similar delta of .22, which is 1160, about 8.4% away from todays spot, however its low volume. Let's look at strike 1150, priced at $14.90. Delta is .24, Call side IV 108%.
Because upside is the bigger risk, I add a long call at above the short call. This caps my loss if MU jumps. My options are 1170 or 1200. At 1200 (delta .14), because of higher volume. Long call price $7.50.
Total estimated credit if I had placed the trade today: 13.45+14.9-7.5 = $2,085
Max loss 97,915
Return / Risk = 0.02
Prof Prob 64%
**Tomorrow I will add comments to this post on the opening trade, and on Friday, the closing and profit/loss calc.**
**Other thoughts and questions**
* Do prediction market price estimates add to the data? Not really, its priced in.
* Does the GEX wall add to the data? As of today GEX for Call and Put is 1100 and 1000 respectively. Not really, these will move post event anyway.
* Ideally, I'd like to see an estimated profit profile for all price ranges for the next 2 to three days, but does it matter? Not really because I am trading an event with managed risk.
**EDIT: (T+1 Thursday Oc 1) Summary on trade, outcome and observations**
Setup: Short strangle near implied move, or about closer in at \~20s delta where I see high options volume. Add protective long call +$20
**Trade open on Wed for $1,380** ([more details in this comment](https://www.reddit.com/r/options/comments/1wtgr2k/comment/pd18p0d/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button))
**Trade close on Thu 9:55am for $400**
Profit minus fees: **$975**
**Observations**
**Keeping in mind US macro news, it was a good trade. My grubby hands were too close to pulling in the strikes to a higher delta. IV from 120% to 54% on day after AMC earnings.**
**More importantly, its usually intraday luck. I closed the trade at 9:55a, vs now 10:24 when the price has further dropped to 1029. Could have been $800 profit instead of $975.**