November 13th

Speculative earnings plays; as promised a bit more on this subject today.

The primary goal for these trade is to make use of the difference in front month and back month volatility (skew) and the drop in volatility in the days after the earnings announcement. Normally the skew will lessen - both IV will come down, the front month IV a bit more than the back month.

The above IV moves are to most clear closer to the expiration date, hence my preference to do earnings trade in the last two week of the expiration cycle.

Select your equity; for instance by looking at www.earnings.com - you want stock with good volume - the kind of stock that if they miss earnings even non financial newspaper will write about it.

The expected move till the expiration date equals the price of the the at money straddle. If a stock is not exactly at a strike you can average out.

1. Check if your strategy (calendar, butterfly or iron condor) will be safe if the expected move materializes
2. Check the last couple of years of earnings how well the stock behaves compared the ATM strangle
3. Read up on any last moment company and sector news to see if extraordinary circumstances are in play.

All plays out - you're good to go.

The research you do is reusable. Every 3 months your IBM's etc will comeback for an earnings cycle. if you stick with a couple of favorites, you will get to know them better and better.

This is the kind of speculative trading you can do - while using defined risk strategies. Your risk is limited - your results are limited - but you are not waiting for a specific move up or down - as long as the move stays within the brackets you will profit.

As for today's market - whoah should be enough - if you didn't watch interday action - check the SPY on the hourly. Great volume - nice spike in the VIX.