Monday, August 2, 2010

For Everything Else There's MA

MasterCard is set to report earnings before the bell Tuesday morning. As I've mentioned ad nauseum, my default earnings bias is to short volatility as vol sellers typically have the upper hand. As with any set of stats, you always have your outliers bucking the trend. Looking at the data for MasterCard's last seven announcements, one could certainly assert it's one such outlier. In fact, it seems to be on a mission to punish short volatility players. Consider the following table outlining the earnings performance of MasterCard (click image to enlarge).

The Gap columns track the performance of MA from the prior day's close to the earnings gap open. The Straddle Value and Change columns track the performance of a front month ATM straddle from the prior day's close to the earnings day close.

Though it's granted three winners to vol sellers over the last two years, the rewards have been a paltry sum in comparison to the losses incurred by the four losers. Surprisingly, even the smallest short straddle loss (2/5/2009) was larger than the biggest winner (5/1/2009). Trader's habitually selling the pre-earnings vol ramp up may want to take this data as a note of caution for MasterCard. While short strangles or condors may have fared better, shorting straddles has not been a lucrative endeavor.

For related posts, readers can check out:
GOOG, What Vol Bid-Up?
Earnings Season Primer
Earnings... the Wrench in the Theta Clock

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