So you are saying that there will not be IV crush after earnings?
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
So you are saying that there will not be IV crush after earnings?
jeewee3000
Active Member
Earnings often create a big move in the SP (5% one way or the other), increasing volatility.
Sometimes it's the opposite and we get an IV crush after an ER, if the stock doesn't make a big move and it has done so before the ER.
This time around, TSLA options are on relatively low IV so IV will probably rise tomorrow morning. After all, the stock hasn't moved much in anticipation of this ER compared to what we're used to.
TL;DR it's gut feeling and nobody knows for sure.
We often see a build up of IV before an event and then a crush after as traders sell the news. However this time around the IV has actually dropped a bit so far into earnings and has dropped around 15% in the last month. So it doesn't have as much room to crush and could well shoot up for a bit.
Agreed...without any conclusive hard evidence, I think think the stock overall has been depressed and we are due to soar esp with great news tonight on earnings!
bkp_duke
Well-Known Member
The options makers are hedging their bets. Seeing some call walls form at 800, 850, 900, and 1000. Nothing crazy, but you can tell that they are not sure what TSLA is going to report.
Well I went out to Giga Austin yesterday and all I can say is wow
alterac000
Member
This is awesome. I live in the surrounding Austin area. Can anyone from the public go and check out the site??
IV for Apr30 expiry has shot up 15% from 71% on Friday to 86% so far today. CC prices starting to get interesting.
Would love to hear trading plans for approaching this week! So far I plan to wait until Tuesday to sell calls or puts. Other than that I’ll pretty much be trying to imitate this thread’s finest
I've already got multiple positions open that are expiring this Friday (4/30). They are mostly ITM but close enough to the share price that they are carrying significant time value - around $15-20. The one that is noticeably lower is a far OTM put that is still worth enough to let time work for me this week. The big position I have is a 770/710 inverted strangle that has been steadily narrowing for more than a month. I particularly like the current share price and would love to see something like this at the end of the week as it'll provide an excellent roll on both sides - probably even get me back into a strangle or at least a straddle.
As is true with most earnings reports, I expect this to be a buy the rumor / sell the news event with IV going down afterwards. That doesn't mean I'm right by any means, but it is how I'm handling things. For today that means do nothing. And since today is a 10 hour driving day, do nothing will be easy to do
Outside of a significant move in either direction I expect that most of the week will continue to be do nothing until Thursday or Friday as all that existing time value erodes. Should any of the positions see their time value drop into the $1-2 range then I'll be rolling and will consider 1-4 week rolls to see which I like the best.The way I think about IV changes around earnings - IV goes into earnings at a relatively high level due to the uncertainty that investors perceive around the earnings report. The more variable the range of results, the more uncertainty and the higher the IV. Once the earnings report is out then the uncertainty is removed and IV drops as a result. It is certainly the case that we could have an outstanding earnings result that also sends the shares soaring. Except that it won't be the earnings report that moves the shares up; it'll be the excellent earnings report that draws significant new buying into the market that will send the shares soaring.
EDIT to add: None of which makes me right. That is just the way I see it and am behaving accordingly.
And its that latter bit - that new buyers will be drawn in as a result of this earnings report (in large numbers) that I don't see happening. Specifically because I don't see the financials as being SO good that the investors that rely heavily on financial metrics to see enough (yet) to start buying in.
For IV to go up after earnings, again using my mental model, we would need increased uncertainty (I don't see this) or at least a bifurcated response to the earnings, with a heavy dose of excitement from the earnings matched with a heavy dose of "that was a disaster - company is badly overpriced" arguing it out in the market afterwards (sellers dumping like crazy due to being overpriced; buyers adding shares hand over fist due to how good it was). Sidebar - I think that it's been this heavy commitment to both sides of the company story since the beginning of time (or at least 2012 when I got started) that has held TSLA IV so high that we consider IV in the 100s to be semi-normal. I don't see that same tug of war between the two belief systems today, so I tend to think that IV in the 60s to 80s IS our new normal.
Bit of parenting here, but the wheel is a trading strategy that focuses on accumulation and distribution of shares on a short timeframe. It is not for share accumulation. It necessarily requires one to sell shares, and that's at odds with the approach of most of the people here, which is B&H TSLA.
Selling puts OTOH is a viable, though rather ill advised method of share accumulation. With TSLA's tendency to skyrocket, its best to just buy shares when you can (if TSLA share accumulation is your goal) rather than hope there will be a pullback where you actually are assigned shares.
Like @adiggs notes, generally when one has tiers/steps of orders/targets its called a "ladder".
FWIW, while laddering isn't a terrible way to go, its heavy on the FOMO. The most efficient traders have very well researched price points and don't need to "but what if it keeps going" their orders. Ladder if you need too, but IMHO strive for more confidence in your positions than that. Strive to be good, not lucky.
For some very basic math, if one were to only enter trades with a 3:1 Reward:Risk ratio, statistically one could only win on 25% of their trades and still break even.
This is the key. When applied properly The Wheel--and selling options in general--is a [small] part of a bigger strategy. Folks here generally are heavy on B&H TSLA, and they don't want to let those shares go. They're also not selling calls against those shares, at least not all of them and certainly not aggressively, as the potential for small, incremental revenue is far outweighed by the possibility of a mad TSLA rally.
jeewee3000
Active Member
Good reasoning. I'm not taking a stance (and therefore position) either way, since there could of course be surprises.I've already got multiple positions open that are expiring this Friday (4/30). They are mostly ITM but close enough to the share price that they are carrying significant time value - around $15-20. The one that is noticeably lower is a far OTM put that is still worth enough to let time work for me this week. The big position I have is a 770/710 inverted strangle that has been steadily narrowing for more than a month. I particularly like the current share price and would love to see something like this at the end of the week as it'll provide an excellent roll on both sides - probably even get me back into a strangle or at least a straddle.
As is true with most earnings reports, I expect this to be a buy the rumor / sell the news event with IV going down afterwards. That doesn't mean I'm right by any means, but it is how I'm handling things. For today that means do nothing. And since today is a 10 hour driving day, do nothing will be easy to do
The way I think about IV changes around earnings - IV goes into earnings at a relatively high level due to the uncertainty that investors perceive around the earnings report. The more variable the range of results, the more uncertainty and the higher the IV. Once the earnings report is out then the uncertainty is removed and IV drops as a result. It is certainly the case that we could have an outstanding earnings result that also sends the shares soaring. Except that it won't be the earnings report that moves the shares up; it'll be the excellent earnings report that draws significant new buying into the market that will send the shares soaring.
EDIT to add: None of which makes me right. That is just the way I see it and am behaving accordingly.
And its that latter bit - that new buyers will be drawn in as a result of this earnings report (in large numbers) that I don't see happening. Specifically because I don't see the financials as being SO good that the investors that rely heavily on financial metrics to see enough (yet) to start buying in.
For IV to go up after earnings, again using my mental model, we would need increased uncertainty (I don't see this) or at least a bifurcated response to the earnings, with a heavy dose of excitement from the earnings matched with a heavy dose of "that was a disaster - company is badly overpriced" arguing it out in the market afterwards (sellers dumping like crazy due to being overpriced; buyers adding shares hand over fist due to how good it was). Sidebar - I think that it's been this heavy commitment to both sides of the company story since the beginning of time (or at least 2012 when I got started) that has held TSLA IV so high that we consider IV in the 100s to be semi-normal. I don't see that same tug of war between the two belief systems today, so I tend to think that IV in the 60s to 80s IS our new normal.
For example: if they announce FSD subscription pricing tomorrow and the beancounters put them in their models, we could see a SP surge the coming days. If so, IV could rise.
But IV staying relatively the same or dropping is just as likely, be it not more so.
GLTA
Yep. The other major upside of spreads over nakeds is a much better profit to margin ratio. Of course that comes with higher risk, but in most cases its worth that trade. I can't remember the last time I ever sold a naked option. Maybe years?
IV is at 58.3 right now which seems ridiculously low compare to recent months but maybe @bxr140 is right an IV might trade between 30 and 80 like in the past. I was hopping to unload all my options before earning but IV never got to my target. Now I am thinking about holding and hoping for the SP to goes up significantly to counteract the possible drop in IV.
Here is his original post:
Applying options strategy 'the wheel' to TSLA
Here is his original post:
Applying options strategy 'the wheel' to TSLA
There won't be a crush, but its likely IV is going to keep going down from here. There may be a small spike in IV if there's a massive reaction to earnings but with quite a bit of room for IV to keep going down [back to pre-2020 levels] its unlikely we're going to see a sustained increase in IV.
Max Pain is most people's go-to, unless one is pulling the data themselves.
Definitely approach Max Pain with caution. The theory behind it is solid, but one of the big realities is that the underlying price of max pain is the lowest point in a fairly wide and shallow bowl (a "bathtub curve", so to speak), and there's a lot of underlying movement in either direction that doesn't materially change the Max Pain value. Its kinda like identifying the deepest point of that puddle in the road. With TSLA $50 or even $100 worth of underlying movement will only change the max pain number by a few %. A few % is well within the acceptable range for MMs, at least from time to time.
Call walls are a pretty good layer in the analysis of max pain data, but it is also super important to keep in mind bigger picture monies involved. The $800 wall does seem imposing; at 20k open interest it represents $1.6B. That's certainly not chump change, but as a [not quite apples to apples comparison] TSLA's average volume is ~36M shares which represents $29B at $800.
That's not to say the $800 wall is bad data or should be ignored (I'm holding number of $800 calendars through earnings, as a matter of fact), it just needs to be taken in relative context, as an indicator that's part of a bigger picture analysis strategy.
Can someone please explain to me what on earth I'm missing by selling my trading shares 400, I bought this morning.... I have a 1% gain.... why not just turn around and sell puts at 740? The premium is $30... I have to be missing something for these trading shares.
seriously. is there a downside to selling put DITM for Friday expriation? Seems like it would average to 710 price per share average if I'm wrong... and good premium if I'm right and stock ends week higher.... just wondering about this strategy if I wanted to make a portion of my position for selling puts today
this morning's 736-739 roller coaster is perfect setup for daytrading
FWIW, its pretty tight for day trading today. I drew a couple quick TL's on 5 min and there's not a ton of meat on those bones. Given the calm before the storm element of today I wouldn't advise day trading unless you have a solid strategy.
Also FWIW, I'm a big fan of Floor Trader Pivots for day trading, which are the red blue and yellow lines on the chart below. Its easy to after-the-fact them, like hitting R2 (The top red line) off the bell and then quickly dropping to S1 (the lower blue line), but (IMHO) its also no coincidence that price is settling around the central pivot (the yellow line).
Looking at it another way, we're fixin on a symmetrical triangle. Look for a big break in either direction as an entry signal, though beware of that entry being a fake-out.
DITM puts are a terrible idea. You get *sugar* for extrinsic value (which is the point of selling the put in the first place), you need underlying to move up to realize gains off ∆, and as underlying moves up you progressively realize smaller and smaller returns because of decreasing ∆ and gamma and increasing Vega.
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