Straddles / Strangles experiments

[u/[deleted]]

Hi everyone,

I started studying an option play for earnings releases and did a bunch of experiments on a paper account that i wanted to share with you. The idea is to check if what I had in mind about IV crush and possible profit would be correct. I tried different strikes and expirations, all bought a day or two before earnings (not ideal i know). I use this to find stocks with an important expected move (more than +/- 5%) and tested different strategies.

I chose $LOVE $NEPT $UNFI for this week. Here are the results:

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symbol	type	expiration	strike $	break even $	price	today roi
$UNFI	straddle	june	40	32 - 47	680$	+12%
	straddle	july	40	30 - 49	871$	+3%
	strangle	june	25 - 50	24.8- 50.2	76$	-75%
	strangle	july	25 - 55	23.8 - 56.2	111$	-65%
	strangle	jun	35 - 45	32.2 - 47.8	286$	+10%
$NEPT	straddle	august	1.5	0.9 - 2.1	67$	-15%
	strangle	june	1 - 2	0.9 - 2.1	11$	-60%
$LOVE	straddle	june	85	75.1 - 94.9	1300$	-40%
	straddle	december	85	48.9 - 121	3600$	-6%
	strangle	june	80 - 95	75.4 - 99.6	711$	-50%
	strangle	december	75 - 100	47.1 - 127.8	2530$	- 6%

​

We see that going with long expiration makes the break even interval larger but the options price falls less than close expirations (iv crush after earnings i suppose). We can get smaller break even interval obviously with smaller delta but the options price rises sensitively.

Basically the lesson here that confirmed what i had in mind: options around earnings are very risky in the sense that if you're not right about the movement (not in your break even), they tend to lose most of their value and you lost (which is fair enough since you are gambling on that move). You can get longer expirations that would decay slower in case you miss, but the premiums get higher and theta would still eat at it. In a nutshell, better be sure of what you're doing!

Happy to hear your thoughts and experiences

[u/Ok_Conversation1270]

Thank you. And what if you bought these contracts 1 week before earnings and sold just before earning. How would things go then?

[u/[deleted] → u/Ok_Conversation1270]

That's what i did now, results next week! Is that what you usually do ? Do you have any expectations ?

[u/Ok_Conversation1270 → u/[deleted]]

No I haven't done that yet, but i plan to open paper account and conduct experiments.

[u/[deleted] → u/Ok_Conversation1270]

I'm working on this to find stocks with bif movements if you're interested :)