Add training workflow, datasets, and runbook
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Volatility Buying
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This same earnings event could have been played entirely differently. A
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different trader, Bobby Buyer, studied the same volatility chart as Susie. It
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is shown again here as Exhibit 12.7 . Bobby also thought there would be a
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rush and crush of IV, but he decided to take a different approach.
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EXHIBIT 12.7 Chip stock volatility before and after earnings reports.
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Source : Chart courtesy of iVolatility.com
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About an hour before the close of business on July 21, just three days
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before earnings announcements, Bobby saw that he could buy volatility at
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30 percent. In Bobby’s opinion, volatility seemed cheap with earnings so
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close. He believed that IV could rise at least five points over the next three
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days. Note that we have the benefit of 20/20 hindsight in the example.
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Near the end of the trading day, the stock was at $49.70. Bobby bought 20
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33-day 50-strike calls at 1.75 (30 volatility) and sold short 1,000 shares of
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the underlying stock at $49.70 to become delta neutral. Exhibit 12.8 shows
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Bobby’s position.
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