Event Volatility

It depends on your edge. If you just want IV expansion, exit before earnings to avoid gap risk. Only hold through if you have a specific view that the stock will move MORE than implied. Most retail traders lack this edge and are better off taking IV gains before the event.

Options price in the expected move from earnings uncertainty. Higher IV before earnings reflects the potential for a large gap. This isn't overpricing - it's pricing event risk. However, on average, options slightly overestimate the move, creating a small edge for sellers.

Very quickly - usually within minutes to hours post-announcement. The majority of the crush happens by market open after an after-hours release. By the next day, IV is typically back near pre-event baseline.

If you're long vol, a huge gap is profitable (that's why you bought). If you're short vol, a gap beyond your breakevens causes loss. This is the fundamental risk of selling event premium. Size positions so that gap losses are acceptable, and use defined-risk structures.

Yes, but carefully. Use defined-risk structures (iron condors, verticals) to cap losses. Start with fewer, less volatile events. A$5,000 account might trade 1-2 small events per month. Focus on learning the patterns before scaling up.

Expected move ≈ ATM straddle price × 0.85. This approximates a one standard deviation move. For example, if the ATM straddle costs A$4.00, the expected move is about A$3.40. Compare this to historical average moves to assess fair value.

Typically 2-3 weeks before the event when IV is still near baseline. Too early means excessive theta decay. Too late means IV has already expanded. Look for IV Rank below 40% for long vol entries.

Iron condor: Wider profit zone, lower max profit. Best when you expect the stock to stay within a range but aren't confident of exact price. Iron butterfly: Narrow zone, higher max profit. Best when you expect the stock to 'pin' near a specific strike.

Sometimes IV is already elevated from previous events or market conditions. If IV expansion doesn't occur, your long vol position suffers theta decay. Consider cutting the position before expiry if the IV expansion thesis isn't working.

Options: 1) Close for smaller profit or loss before breach. 2) Roll the tested side further out (in strike or time). 3) Add a far OTM option to cap risk. 4) Close threatened side, let other side work. Have a plan before entry - don't wait until you're at the strike.

Track: Event date, stock price before/after, implied move (straddle), realized move, IV before/after, and any qualitative factors (beat/miss, guidance). Over time, you'll have data to calculate implied vs realized ratios and identify systematic patterns.

Small caps tend to have larger event VRP (higher implied vs realized). Large caps are more efficiently priced. High-IV stocks (biotech, tech) have more volatile event VRP. Stable dividend payers have smaller but more consistent VRP. Analyze by sector and stock characteristics.

Yes, approximately. A delta-hedged straddle (gamma scalping) approximates variance swap economics. The key is frequent delta hedging. The more frequently you hedge, the closer you get to pure variance exposure. Transaction costs matter.

Options: 1) Limit number of concurrent event positions (max 3-5). 2) Diversify across sectors (don't cluster in banks). 3) Add XVI puts or VIX calls as tail hedges. 4) Leave cash buffer for adverse clustering. 5) Size each position smaller when you have multiple events.

Useful features: Pre-event IV Rank, implied vs historical move ratio, sector performance YTD, analyst revision momentum, management guidance history, options positioning (put/call skew), and earnings estimate dispersion. Combine for classification of 'likely exceed' vs 'likely undershoot' implied move.