More Thoughts On Pre-Earnings Straddle Buy

By Lawrence G. McMillan

We have been having a good amount of success with our event-driven straddles this year – especially with the pre-earnings straddle buys.  We have refined that technique through several modifications since we first began by buying the Qualcomm (QCOM) straddle back in late January.  I feel that we have a very workable strategy now, but there is one “hole” in it, which we will address in this article.

Furthermore, a subscriber has ask a good question: if an (expensive) pre-earnings straddle doesn’t meet our criteria, should be consider a straddle selling strategy?  I’m not sure we have enough data to conclusively answer that question, but we’ll take a loot at it anyway.

But first, let’s start by reviewing the strategy as we have developed it.

Background on The Pre-Earnings Strategy

Sophisticated option traders tend to like to trade volatility more than they like to trade speculative positions (despite what the options “experts” on CNBC might otherwise portray).   Thus they are “volatility traders.”   What volatility traders often look for is unusually expensive or cheap options – either in a skewed situation (where different options on the same stock have different implied volatilities) or in comparison to previous implied volatilities...  

Read the full article (published 10/9/15) and get the complete trading recommendations by subscribing to The Option Strategist now.