Today I submitted an article to Seeking Alpha that I would like to share with you.
How to Play the Google Earnings Announcement With Options
Here’s the link – Google Option Strategy
There are lots of ways to make money with multiple calendar spreads. Finding an underlying stock which enjoys an implied volatility (IV) advantage is a good start. If the options that you are buying have a lower IV than the ones you are selling, you are buying relatively “cheap” options and selling relatively “expensive” options.
A temporary IV advantage often arises in the few weeks before an earnings announcement. It is especially true when the company has a record of exceeding or falling behind analysts’ estimates by a larger-than-average amount. Apple (AAPL) and Google (GOOG) are two companies that fit in that category.
Google is slated to announce earnings just prior to the expiration of the October (monthly) options. Since a big move in the stock has historically often followed Google’s earnings announcement, the October options have soared in value (over double what they would be if an earnings announcement were not coming along). This causes a significant IV advantage to buying calendar spreads at this time.
While having an IV Advantage stacks the deck in your favor, it should not be used as a sole determinate in choosing an underlying instrument to trade options on. It is possible to make good returns with the 10K Strategy when you don’t enjoy an IV Advantage, but it is extremely helpful whenever option prices make it possible.
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