MON meets my high implied volatility and liquidity requirements, and it confirmed the bear signal by continuing to trade below Thursday's 20-day price channel, although it is up intra-day, a sign that the downward momentum may be fading. Since MON has low odds of bear-signal success, the upward reversal is a positive for the trade.
The problem is earnings. They are scheduled for June 24, and the advent of earnings is no doubt the reason why implied volatility is high. I anticipate that volatility will continue to rise up to the earnings announcement.
My profits in part depend upon a collapse in implied volatility. That being the case, my best tactic is to wait until the last trading day before earnings, and open the position then. Chances are I'll have higher volatility than today, and the collapse will be likely to occur the next trading day. No need to tie up money in the postion any earlier.
-- Tim Bovee, Portland, Oregon, June 5, 2015References
My volatility trading rules can be read here.
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