Event Volatility

For selling premium: 7-14 days gives good IV elevation with time for decay. For buying premium: 3-4 weeks allows you to capture IV expansion. Avoid entering very close (< 3 days) due to high gamma risk.

It depends on your structure and risk tolerance. Defined-risk structures (iron condors) can be held through if you accept potential max loss. Undefined risk (short strangles) is very dangerous. Many traders exit before to avoid gap risk.

Expected move is the market's estimate of how much the stock will move, approximated by the ATM straddle price. If a $100 stock has a $5 straddle, expected move is ±$5 (±5%). Use this to set your strikes beyond this range if selling premium.

Yes, but only with defined-risk structures. Iron condors, iron butterflies, debit spreads, and long straddles/strangles are all TFSA-eligible. Naked short options are not permitted.

Earnings are company-specific with higher IV elevation (20-50% premium). BoC decisions are macro events with lower IV elevation (5-15% premium) but affect many stocks. Both have IV crush after resolution.

Limit maximum loss to 2-3% of portfolio per event. Calculate your structure's max loss, then size accordingly. Account for correlated events (multiple banks in same week) as one larger position.

With defined risk (iron condor), your loss is capped at max loss regardless of gap size. With undefined risk, losses can exceed expectations significantly. This is why defined risk is crucial for event trading.

It depends on conviction and time remaining. If you believe the move is exhausted and there's time for recovery, rolling can work. But don't compound losses - often better to close and move on.

Build a spreadsheet tracking each event: record implied move (straddle price) vs actual move (next-day gap). Over many events, calculate if the market consistently over or underprices. This validates your edge.

Long straddles for maximum gamma (directionally neutral). Long strangles if you need bigger move (cheaper). Debit spreads if you have a directional view. Buy early (3-4 weeks) and sell before event to capture IV expansion without gap risk.

Compare variance (IV²) of the event expiration to a non-event expiration or baseline. Event Variance = Total Variance - Baseline Variance. Then Event Move = √(Event Variance × DTE/365) × Stock Price. This isolates the specific event contribution.

In calm regimes, event premium is cleaner and gaps typically smaller. In volatile regimes, baseline IV is already elevated, event premium is harder to isolate, and gaps can be larger. Reduce sizing and use defined risk more strictly in volatile regimes.

Define universe (stocks with liquid options), entry rules (IV threshold, days before event), structure selection (condor, fly, etc.), sizing (fixed % max loss), and exit rules (profit target, stop, time). Backtest on historical events. Track performance by event type and refine.

Event vega is your aggregate sensitivity to event-driven IV changes. Sum vega across all event positions. Set limits (e.g., max $500 event vega). High aggregate event vega means large P&L swings when multiple events resolve. Diversify across event types and dates.

Sell near-term event week OTM options (capturing high event IV); Buy far-term post-event options as hedge. Net credit entry possible. This sells the event premium while hedging some gap risk. Manage near-term expiration; close or roll after event.