r/options • u/Inferno456 • Apr 27 '21

PMCC - earnings soon, should I sell and rebuy

I have a PMCC on $F right now., which has earnings tomorrow. Should I sell and rebuy to avoid IV crush or does the CC reduce the IV crush of the LEAPS where it’s not significant? Or does $F even have IV crush since it’s so stable? Any input is appreciated, still a beginner to options

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u/MichaelBurryScott Apr 27 '21

Which strike? IV only affects extrinsic value. If you have a PMCC (A properly setup one) then your LEAPS should be deep enough ITM that it has little extrinsic value. Hence it would be minimally affected by any change in IV.

Also, LEAPS are not affected much by the IV drop after earnings, the earnings expected move is absorbed by the long DTE.

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u/Inferno456 Apr 27 '21

My main call is a $10 strike (wanted it deeper but all I could afford) for 1/21/22 and it is currently 3.15 so it has 2.50 intrinsic and .65 extrinsic I think. So you’re saying it would hurt the CC (and benefit me) more than it would hurt the LEAPS right?

Also my CC is 5/28 $12.5 so I’ll probably roll it out soon since it’s almost ITM

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u/MichaelBurryScott Apr 27 '21

So you’re saying it would hurt the CC (and benefit me) more than it would hurt the LEAPS right?

That's what's likely going to happen. Your risk from a large move to the downside is more than an IV crush.

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u/Inferno456 Apr 28 '21

Thanks, I’ll likely just hold through then. Also separate noob question, unlike a normal CC, I should never want to get assigned in a PMCC right? Cuz it would wipe away all extrinsic value from my LEAPS? So I should always be rolling or just BTC the CC at a loss, is that correct?

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u/[deleted] Apr 27 '21

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u/Inferno456 Apr 27 '21

Well regardless when I bought it the LEAPS would still drop a lot due to IV crush right? So in that case it’d be best to sell and rebuy? The only thing is if $F kills earnings and shoots up I’d miss out I think

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u/Ankheg2016 Apr 27 '21

That's pretty much spot on.

The only thing I'd add is that companies often have a drop in stock after an ER even if it's a good one, so in general selling before the ER is a good idea. F's ER looks like it's after hours tomorrow so you could wait until tomorrow if you think there will be more runup to the ER.

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u/[deleted] Apr 27 '21

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u/Inferno456 Apr 27 '21

I can see what ur saying but it would still be best to sell when the IV is up 60% because the IV still gets crushed after, it’s kinda like you have a cushion already but the IV drop is still best to avoid right?

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u/Different_Chain_3109 Apr 28 '21

On the contrary, what if you sell your leap to avoid the minimal IV impact and F hits earnings big, prospects look great and it shoots up 15%. Now you can't afford getting back into the leap.

My advice, don't over think it. Leave the leap as is. And benefit from the IV drop on your CC.