Wednesday, October 21, 2009

The One That Got Away

So I must have missed last night's earnings announcement on Intuitive Surgical (ISRG). Since it usually has a big volatility lift into earnings I typically throw it on my radar each earnings season. Perhaps I subconsciously decided to avoid all things ISRG after the shlacking I took during its last earnings announcement. Last go around I mentioned a short vol strategy in my post titled Earnings Intuition, which given the outcome of the trade we can now deem as the worst titled post EVER.

Well, consider last night's announcement and today's reaction vindication for vol sellers. Though last earnings announcement resulted in a 20+% gap, currently ISRG is down a mere 6% and IV is taking it on the chin.

The pre-announcement bid up had IV30 trading at 56%, a hefty premium to 20 HV at 35%. Given the virtual non-event the reaction has turned out to be, we can now say that vol bid up was all for naught. Currently IV30 is down 19pts. to 37%. A volatility crush at its finest!
[Source: Livevol Pro]

I ran the numbers on a Nov 310-320 220-210 Iron Condor that could have been sold yesterday for $2.10 credit. Traders had the chance to exit this morning around $1.00 debit, resulting in about 50% of the potential profit. Though that $1.00 profit probably pales in comparison to the losses from short vol strategies last earnings season, it may just assuage a bit of the leftover pain.


tjktrader said...

Worse than forgetting about it, is watching it and getting cold feet. I had those same spreads ready to go, but just kept looking at last months and other previous months moves. not having done an earnings play on it for real before, i just paper traded it.

I have been using LIVEVOL free version. Good volatily chart. Do you subscibe to the full version, and if so do you feel it is worth the $100 a month

Tyler Craig said...

Hey tjktrader,

yeah, it's sometimes tough taking the plunge when an earning blowout has whooped vol sellers in the past. Nothing wrong with paper trading it to see how it would have played out though.

I do subscribe to the full version of livevol. Whether or not it's worth it comes down to how much you use volatility, order flow, and earnings plays. I'm not sure the difference between the free version and the subscription one, but I believe the free version has delayed volatility (not a problem if you don't need to see vol intraday IMO). I don't think you get access to the Earnings Tab which shows the past 2 years or so of earnings straddle and volatility reactions.

The charts aren't as versatile as other platforms, but it's still worth it for me.


Sounds bad