Yes, The Only Band that Matters is on tap for tonight. And as usual, it's a Fear Fiesta.
May volatility sits in the low 80's, and I'm guestimating it goes to the low 60's? Looking to me like a 15% move is priced in tonight, which is par for the BIDU course.
Don't forget that BIDU is a more volatile name than GOOG, so 15% is not cosmic in here. But it's scary nonetheless to pick a direction and get stuck on the wrong side.
Are long calendars the way to go to play for an earnings reaction within range? Probably not the worst idea if you can get past the sticker shock of paying like $50 or more for OTM options. Seps, Decs and Jans all carry volatilies in the mid 60's. That will go down after the news, but probably not huge. Take GOOG as an example. Volatility for a normalized ATM option with 120 days to go dropped from a volatility slightly north of 40 to about 36. And that was after a thrombolic move in the stock. If BIDU out month's have a similar trajectory, volatility goes to the low 60's most likely. Tough to know without specifics, but anything other than an outsized stock move probably gives you a small winner there.
Now it's important to note that the outsize move is your risk. Let's say you had ATM calendar's on in GOOG before the number. The stock moved so much away that no volatility action could mitigate that loss.
10 comments:
In the last earnings cycle in February, the vols on BIDU's deep OTM puts in some cases went from 200% to 90%.
Now that's WAHOO!!
Nothing like that kind of juicy drop seems on tap this time around. I actually think the stock is behaving "more normally" -- if you could ever call a search engine company in a totalitarian state "normal."
it's the "new" normal i guess.
Could be interesting, they really need a blow the doors off number.
Adam, I just looked at my standard deviations study.
A 15% move would be a 3SD spike on on the 20 day rolling. That would be large, even for BIDU.
I guess I just don't see it. Implied vols are right in line with the historicals now. In fact, earlier this month, impiled vols were actually 20 points lower that historicals!
These numbers tell me, frankly, that nothing much is going to happen -- not much of a pop, not much of a sag, with options prices just sort of sitting there,lumpy, doing nothing.
I just think in light of GOOG and past BIDU moves, 15% is about normal.
I'd go with the "under" too if i had to guess.
Well, down 8 in session trading to 342, now up 11 to 353 after hours.
Can somebody say "range bound?"
This after a huge spike in revenue and profit, and forward guidance that suggests things are only going to get better as more and more Chinese young men look at on line porn in lieu of the few real women available to them.
(yes, it's true, I just added that).
could move more in the AM, didn't realize how late the conference call was.
Well, stock up 5%, but vols down to 60%.
Even yesterday's ATM call options have lost value.
One of my business school profs said to me once that the Black Scholes options pricing model is like that crazy girlfriend who you simply can't stay away from because, well, she provides compelling benefits at the same time she can make you insane.
the model is fine, it's the volatility of volatility that's probably not in the textbooks.
I sold 5 420 may calls @ 5.20 close to the close. I knew everybody was thinking GOOG pt.2, and you could tell that was baked in the cake, especially after AAPL. I really wanted to buy something, but everything was just way too stretched and expiry was so far off. But, the IV premium didn't sap out as much as I expected, so I covered at 3.50. Tells me theres a good chance if the market could rally from here......BIDU could flirt with 400, even though I have a strong belief the 420s i sold will be worthless. All in all, i think selling IV on high $ stocks is too much risk, and probably the last time i do it. In retrospect, this trade was WAY too risky, even after the GOOG, to consider again. You'll find me selling IV on earnings on a 35$ stock before i write junk on a 100$+ stock. I got lucky.
i've done that sort of thing too, made or lost a little on trades like that than afterwards wonder wtf am i am thinking, taking all that risk, for what?
Truthfully, I think you hit the nail on the head, the real one's to sell are the lower volatility "boring" names that expect like 3-5% moves, and don't even manage that most of the time.
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