19 lines
1.3 KiB
Plaintext
19 lines
1.3 KiB
Plaintext
Volatility Selling
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Susie Seller, a volatility trader, studies semiconductor stocks. Exhibit 12.3
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shows the volatilities of a $50 chip stock. The circled area shows what
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happened before and after second-quarter earnings were reported in July.
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The black line is the IV, and the gray is the 30-day historical.
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EXHIBIT 12.3 Chip stock volatility before and after earnings reports.
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Source : Chart courtesy of iVolatility.com
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In mid-July, Susie did some digging to learn that earnings were to be
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announced on July 24, after the close. She was careful to observe the classic
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rush and crush that occurred to varying degrees around the last three
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earnings announcements, in October, January, and April. In each case, IV
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firmed up before earnings only to get crushed after the report. In mid-to-late
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July, she watched as IV climbed to the mid-30s (the rush) just before
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earnings. As the stock lay in wait for the report, trading came to a
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proverbial screeching halt, sending realized volatility lower, to about 13
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percent. Susie waited for the end of the day just before the report to make
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her move. Before the closing bell, the stock was at $50. Susie sold 20 one-
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month 50-strike calls at 2.10 (a 35 volatility) and bought 1,100 shares of the
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underlying stock at $50 to become delta neutral. |