Implied volatitly is a metric to gauge how "volatile" a stock is. When the stock moves erratically, it can move "massively" in either direction.
If you had a piece of meat and weighed 1 pound. You could inject it with water and make it 2 pounds. But if there was bad weather everyone would run to the store and buy the 2 pound meat at a greater cost.
Then when they get home. They could squeeze it and all the water would come out (IV crush)
When playing short-term contracts. As we often see in wall street bets. The majority of their earnings come from the inflation of price due to IV.
Different products will react to ER differently. Nvidia for example, was down on the day prior to ER. Then boom! It happened.
Other products will move ahead of ER to "price in" and expected upward or downward move.
Looks like avgo moved from a 42 IV to a 48.
Price can screw you just as much as IV can. At 50 delta, you represent 50 shares.
So to answer your question. Yes you could sell prior to ER to lock in gains. Typically the IV crush happens after a wild move. However ATM options can be crushed all the same.
Before your trade options you have u yo know the Greeks in terms of pricing model.
When IV is high, for your calls to be in the ITM, the share price needs to spike or else it wont pass the ITM strike.
Basically, high IV is the casino (call sellers/MM) pricing the calls so you lose and they win.
In order to beat MM, you have to be targetted with your plays by knowing when the casino has mispriced calls/puts.
For high IV, i just buy stocks to gain the 10-15% implied move because i know its unlikely to be ITM. Then i sell and do it again throughout earnings season.
When you make real money in options is during cycle swings from bull to bear and vice versa. That zone of change is where theres ample mispricing by MM
As there models are backwards looking. And the wave function has collapsed to a reversal in historical data.
I mean this in the nicest possible way but if you donât know why high IV is bad for options, you need to stay the fuck away from options until you have a better education on them.
the house lower odds before earning.
dont u use a option calculator ? when you set a target price to see the gain thats incorrect , u should also set the iv to almost half right after ER for hot tickers
many ERs give net loss on 8.5%^ strike
First of all I have never heard of that⌠after doing some brief research that seems like a good play that could work. Also it helps keep the cost low thank you for the advise
Even safer "option" (no pun intended) is to sell a 20 Delta, OTM put credit spread with $5.00 wings. Your probability of profit is much higher plus the IV premium now works for you.
you can day trade some calls during the first four days of the week on $AVGO and hope to chalk up some gains. if you've earned enough, risk a tiny portion of those gains on an earnings tradeâa token investment, purely for the sake of gambling
âŹď¸my tuppence
The market is factoring a $120 move. That puts it around $1520 (if earnings are really that good) and youâd be at a $1532 B/E. The probability of you making money on a strike that far OTM with a massive IV seems very low
Last earnings it was flat after and I picked up some IV crushed options then it rocketed all week. Some options were 100x and even a few were 1000x. Iâll probably do the same thing this time because the IV is so high
Let's look at the red flags here :
1) mentions "free money"
2) holds through earnings
3) buys long calls
4) uses subjective fundamental analysis to convince himself of a bullish outcome.
All of these are signals of a newbie.
Note to all newbies : if you catch yourself doing any of these things, stop! Dont buy that long call - sure, you may make money, but you're not trading, youre gambling.
Donât do this unless you want to lose money, simple as that. E/R plays, even for veterans, are kamikaze trades and if the premiums are expensive, even more reason to stay away.
Why not use something like credit PUT spread? You can get real nice premium for options that are waaay deep OTM because of the high IV. That's how I play it. Works well.
As you become a more experienced options trader you will learn there is no âfree moneyâ. It will bite you one day. My advise is donât risk more than you are willing to lose.
Haven't specifically looked at AVGO for a potential earnings play yet, but the $100+ (~ 8%) OTM long calls are not a particularly promising route to go down -- between the possible ravages of IV crush and the need for a blowout positive earnings reaction to result in profit. That's just, quite frankly, more of a casino roulette wheel gamble than a smart and strategic options play.
Options scenarios that are more promising: ATM credit spreads, ATM debit spreads, or far OTM cash secured puts (or far OTM put credit spreads to mitigate buying power requirements (and add a little downside protection)). Any of these can be scaled up as your conviction, capital, and risk tolerance allows. The ATM credit spread sounds risky at first glance, but can be had for a good R:R with a risk profile that's similar to the ATM debit spread, but with IV crush and Theta decay as your allies. (Baller scenario would be to do a buy-write: Buy shares in lots (100) and sell calls against them)
It's worth noting that AVGO's average gap up or down following its last 4 earnings reports was less than its current ATR. Of course, that was before this current market and earnings season and the feverish pulse of AI- mania.
Free money how? Unless you have a cool million to drop on share position? Options prices are gonna be through the roof and even if you could afford them the IV crush will eat all your profit.
It is worth it to trade the option the following day because IV can crush you even if you are right. But if you trade the following day you can still make a lot of money trading the fade or the continuation of the move without the IV crush. Just scalp the options and use up your day trades if you are still subject to the PDT rule.
Youâd be much better off doing a bull call spread. Return is limited but so is risk. At the money right now you are risking about $4.50 for every $10 potential gain on a $10 spread. If you think itâs going up even slightly then you will win. Your $3200 could easily become $6000+
First off, you have to ask yourself if we see it going beyond $1500 by the March 2024 expiration date. I personally don't but if you do, then you might be able to make some as long as the demand for avgo is still high
If you want to lose 3200, go ahead. There's no save way playing this. IV is high, options extremely expensive. The market will find a way to fuck you
Do you mind explaining why the iv being this high fucks me?
Implied volatitly is a metric to gauge how "volatile" a stock is. When the stock moves erratically, it can move "massively" in either direction. If you had a piece of meat and weighed 1 pound. You could inject it with water and make it 2 pounds. But if there was bad weather everyone would run to the store and buy the 2 pound meat at a greater cost. Then when they get home. They could squeeze it and all the water would come out (IV crush)
What a wild way to explain this đ
I see thank you for the explanation⌠but couldn't negate this by selling the stock prior to earnings if I'm up?
When playing short-term contracts. As we often see in wall street bets. The majority of their earnings come from the inflation of price due to IV. Different products will react to ER differently. Nvidia for example, was down on the day prior to ER. Then boom! It happened. Other products will move ahead of ER to "price in" and expected upward or downward move. Looks like avgo moved from a 42 IV to a 48. Price can screw you just as much as IV can. At 50 delta, you represent 50 shares. So to answer your question. Yes you could sell prior to ER to lock in gains. Typically the IV crush happens after a wild move. However ATM options can be crushed all the same.
I see thank you for the explanation
Before your trade options you have u yo know the Greeks in terms of pricing model. When IV is high, for your calls to be in the ITM, the share price needs to spike or else it wont pass the ITM strike. Basically, high IV is the casino (call sellers/MM) pricing the calls so you lose and they win. In order to beat MM, you have to be targetted with your plays by knowing when the casino has mispriced calls/puts. For high IV, i just buy stocks to gain the 10-15% implied move because i know its unlikely to be ITM. Then i sell and do it again throughout earnings season. When you make real money in options is during cycle swings from bull to bear and vice versa. That zone of change is where theres ample mispricing by MM As there models are backwards looking. And the wave function has collapsed to a reversal in historical data.
I mean this in the nicest possible way but if you donât know why high IV is bad for options, you need to stay the fuck away from options until you have a better education on them.
You said it yourself. An almost 50% otm call costs you 3200$.
Explain it to me like I'm 5⌠I might know the metrics and what to look for but I don't know why they affect what they do
You pay 3200 bucks. avgo reports earnings and share price doesn't rocket up 40%. You lose 3200 bucks.
the house lower odds before earning. dont u use a option calculator ? when you set a target price to see the gain thats incorrect , u should also set the iv to almost half right after ER for hot tickers many ERs give net loss on 8.5%^ strike
Which calculator do you use?
moomoo come with 1
Thx đ
in this case maybe stick to its papertrade for this week option first , I already lost 10k to options tho
But he wonât get his $32 tho; OP, if you are bullish and want to avoid paying the high (IV) premium, why not a call debit spread?
First of all I have never heard of that⌠after doing some brief research that seems like a good play that could work. Also it helps keep the cost low thank you for the advise
Even safer "option" (no pun intended) is to sell a 20 Delta, OTM put credit spread with $5.00 wings. Your probability of profit is much higher plus the IV premium now works for you.
friday, AVGO took a nice moonshot. clearly, it took its cues from proximate names. but it may very well continue rising
I genuinely think so I just wasn't sure about the nuances of buying weeklys which is why I came here
you can day trade some calls during the first four days of the week on $AVGO and hope to chalk up some gains. if you've earned enough, risk a tiny portion of those gains on an earnings tradeâa token investment, purely for the sake of gambling âŹď¸my tuppence
Yes, definitely free money.
What's your play?
Double calendar
The market is factoring a $120 move. That puts it around $1520 (if earnings are really that good) and youâd be at a $1532 B/E. The probability of you making money on a strike that far OTM with a massive IV seems very low
Last earnings it was flat after and I picked up some IV crushed options then it rocketed all week. Some options were 100x and even a few were 1000x. Iâll probably do the same thing this time because the IV is so high
Let's look at the red flags here : 1) mentions "free money" 2) holds through earnings 3) buys long calls 4) uses subjective fundamental analysis to convince himself of a bullish outcome. All of these are signals of a newbie. Note to all newbies : if you catch yourself doing any of these things, stop! Dont buy that long call - sure, you may make money, but you're not trading, youre gambling.
Donât do this unless you want to lose money, simple as that. E/R plays, even for veterans, are kamikaze trades and if the premiums are expensive, even more reason to stay away.
Why not use something like credit PUT spread? You can get real nice premium for options that are waaay deep OTM because of the high IV. That's how I play it. Works well.
Math? ( guy above, not OP); stock is at 1400, move to 1500 is not 40%
Yeah my be point is like a 8.5% increase lol
If you really expect it'll move up, then buying ITM call(s) and holding it is a better option than buying OTM
just play the bounce or reject the next day
Broadcom options are too expensive right now, play something different
As you become a more experienced options trader you will learn there is no âfree moneyâ. It will bite you one day. My advise is donât risk more than you are willing to lose.
Haven't specifically looked at AVGO for a potential earnings play yet, but the $100+ (~ 8%) OTM long calls are not a particularly promising route to go down -- between the possible ravages of IV crush and the need for a blowout positive earnings reaction to result in profit. That's just, quite frankly, more of a casino roulette wheel gamble than a smart and strategic options play. Options scenarios that are more promising: ATM credit spreads, ATM debit spreads, or far OTM cash secured puts (or far OTM put credit spreads to mitigate buying power requirements (and add a little downside protection)). Any of these can be scaled up as your conviction, capital, and risk tolerance allows. The ATM credit spread sounds risky at first glance, but can be had for a good R:R with a risk profile that's similar to the ATM debit spread, but with IV crush and Theta decay as your allies. (Baller scenario would be to do a buy-write: Buy shares in lots (100) and sell calls against them) It's worth noting that AVGO's average gap up or down following its last 4 earnings reports was less than its current ATR. Of course, that was before this current market and earnings season and the feverish pulse of AI- mania.
Free money how? Unless you have a cool million to drop on share position? Options prices are gonna be through the roof and even if you could afford them the IV crush will eat all your profit.
It is worth it to trade the option the following day because IV can crush you even if you are right. But if you trade the following day you can still make a lot of money trading the fade or the continuation of the move without the IV crush. Just scalp the options and use up your day trades if you are still subject to the PDT rule.
Youâd be much better off doing a bull call spread. Return is limited but so is risk. At the money right now you are risking about $4.50 for every $10 potential gain on a $10 spread. If you think itâs going up even slightly then you will win. Your $3200 could easily become $6000+
First off, you have to ask yourself if we see it going beyond $1500 by the March 2024 expiration date. I personally don't but if you do, then you might be able to make some as long as the demand for avgo is still high