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Alright folks, let me tell you something about trading earnings - and this is gonna get interesting. |
Look, we're talking about Palantir (PLTR) reporting on November 4th, and I'm gonna break this down in a way that'll make absolute sense. |
This is what I love about the markets, and you're gonna love this too. |
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On any regular day, PLTR moves about $1.40 - that's your normal day-to-day action. But here's where it gets wild, and I mean WILD. |
If you look at the at-the-money straddle right now - and this is gold, Jerry - the option market is pricing in a $5.50 move. |
That's not a typo, folks. We're talking about an 11.5% expected move for earnings week. |
Now check this out - and this is where it gets really interesting - implied vol is sitting at 114%. |
Compare that to the average IV of 76.2%. That's not just a little bump, that's massive! And I trade this stuff every single day. |
Now folks, before we dive into why this volatility explosion matters, let me hit you with something fascinating about options theory - and this is important stuff. |
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Look, the models tell us something really interesting - a stock has a 50/50 shot of going up or down. I know, I know, you're thinking "Don, that's obvious!" |
But hang with me here because this gets good. |
Those fancy option pricing models - and I've worked with these for decades - they're built on this idea of normal distribution. Think of it like a bell curve, right? |
And this is where standard deviation comes into play. |
Now, I love this part because it's where most traders get lost, but I'm gonna make it crystal clear. |
When we're looking at PLTR with that 76.2 IV index - that's telling us something specific about standard deviation. Let me show you exactly what I mean. |
At $41.38, we multiply that by .762 - boom, there's your $31.53. But here's where it gets really interesting - and this is the part most traders miss - option volatility is expressed annually. |
That's right, ANNUALLY. |
But who trades annually? Nobody I know! |
So we gotta convert this to daily terms. We take that square root of trading days - about 15.9 - and now we're cooking with gas. $31.53 divided by 15.9 gives us that $1.98 daily range. |
That's what we're really looking at 68% of the time. |
But here's what really gets me excited - and this is where the opportunity is HUGE. |
During earnings, that implied vol spikes like crazy because nobody - and I mean NOBODY - knows what's gonna happen. |
But what we do know is that after earnings, that vol crashes harder than a lead balloon. |
And this is why buying naked calls or puts during earnings is like playing with fire. |
Trust me, I've seen thousands of traders get burned this way. You need a MONSTER move just to overcome that vol crush. |
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Now, here's where it gets really interesting. We've got the biggest tech names reporting this week - Apple, Intel, and Amazon (tonight). |
And while everyone else is out there throwing darts blindfolded, we're looking at this strategically. |
I've been doing this since my thinkorswim days, watching millions of trades, and let me tell you - there's a better way to play this. |
It's not about guessing direction. It's about understanding the vol patterns and playing them smart. |
That's all I ever ask for - some smart, strategic trading instead of gambling. Because at the end of the day, that's what separates the traders who make it from those who don't. |
And folks, that's what trading is all about - having a strategy, understanding your risk, and most importantly, knowing what the market is really telling you through these numbers. |
Want to learn how I trade earnings? |
CLICK HERE TO LEARN THE STRATEGY NOW |
Ready to stop gambling and start trading earnings with confidence? |
GET STARTED TODAY |
To your success, |
Don Kaufman |
P.S. Blake Young will go live tonight after the bell to talk about my earnings strategy and break down the latest earnings reports. Click here to join him at 4 PM ET. |
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