Thursday, April 21, 2011

4/21 Earns

Only two earnings prospects for after the close today, as befits the last trading day before a three-day spring weekend.

Fortunately for straddle-meisters, the two -- AMD and SNDK -- are both highly prone to earnings surprises and have fairly high volatility.

In theory, that's the winning mix for a post-earnings move.

In fact? Well, that's a subject for testing -- forward testing in my case. I'm keeping track of the earnings this season, with an eye to understanding the relationship between a history of surprises, the level of volatility, and what prices do after the announcement.

Volatility is the big factor, I think. Straddles, after all, rely on increasing volatility to make a profit. So does the trader want low volatility with room the rise, or high volatility with the energy to rise even higher?

That, my dear Watson, is the crux of the matter.

No comments:

Post a Comment