Exploits elevated IV before earnings and IV crush after
| Strategy Type | Event-Driven Options / Earnings Volatility Trading |
| Market Outlook | Exploits elevated IV before earnings and IV crush after |
| Risk Profile | Varies by approach - Defined risk strategies recommended |
| Reward Profile | Profit from IV dynamics and/or directional move |
| Time Horizon | Very short-term (1-7 days around earnings) |
| Iv Environment | High IV pre-earnings, IV crush post-earnings |
| Breakeven | Depends on specific strategy employed |
| Primary Instruments | FTSE 100 company options, UK large cap ADRs (Shell, BP, AZN, HSBC, etc.) |
| Mas Compliance | MAS regulated brokers required; options trading approval needed |
| Trading Hours | UK earnings typically 7:00 AM London (3 PM SGT); US ADR earnings US hours |
| Contract Size | Stock options: 100 shares typically |
| Settlement | Stock options: Physical delivery |
| Tax Treatment | No capital gains tax for individuals in Singapore |
| Margin Requirements | Varies by strategy - defined risk strategies most capital efficient |
| Cdp Account | Not required for foreign options; custody with broker |
| Singapore Relevance | Earnings plays offer high-probability setups for systematic income around predictable corporate events |
IV crush is the rapid drop in implied volatility (30-70%) that occurs after earnings announcements. Before earnings, options are expensive due to uncertainty. After the announcement, uncertainty is resolved and options become cheaper. Short vega strategies profit from this.
Expected move = ATM straddle price / Stock price. It's the market's estimate of post-earnings price change. If stock is £50 and straddle costs £4, expected move is 8% (±£4). Compare to historical moves to find edge.
For most traders: Iron condor (defined risk, profits from IV crush). Set strikes outside expected move. Enter 2-3 days before, exit day after. 65-75% win rate when IV is overpriced (historical < expected moves).
Enter: 2-3 days before earnings when IV is elevated. Exit: Day after earnings at market open. Don't hold hoping for more - the IV crush happens overnight and that's your edge.
1-2% of portfolio per earnings trade. Earnings are high-risk binary events. Even good strategies have losses. Size for survival. Total weekly earnings exposure should be 5-10% max.
Compare historical earnings moves to expected moves. If historical average is smaller (ratio < 1.0), IV is overpriced - sell volatility. Analyze 8-12 quarters of data. Sector patterns exist (tech often moves more, staples less).
Iron butterfly: Very high IV, expecting small move, want max premium. Narrower profit zone but higher credit. Iron condor: Standard choice, wider profit zone, lower credit. Use butterfly when historically stock barely moves on earnings.
Sell front-week option (earnings IV elevated), buy same strike back-month (normal IV). After earnings: Front IV crushes 50%+, back maintains value. Spread widens = Profit. Risk: Need stock to stay near strike.
Post-earnings drift: Stocks continue in earnings direction. Use debit spreads (IV is cheap after crush). Wait 1-2 hours for dust to settle, then trade in direction of reaction. Hold 1-2 weeks for drift.
If gap exceeds expected move significantly: Close immediately at market open. Don't hope for reversal. Accept the loss. This is why sizing matters - one max loss shouldn't cripple your account.
3-5 candidates per week, 1-2% risk each, diversify sectors. Track by stock, sector, strategy for optimization. Total weekly exposure 5-10% max. Screen with move ratio analysis. Systematic approach captures law of large numbers.
Front expiration has earnings IV premium. Analyze skew (put skew steep = bearish sentiment). Find strikes with best risk-adjusted credit using surface data. Wing IV affects iron condor vs butterfly choice.
Move Ratio = Historical Average / Expected Move. < 1.0: IV overpriced, sell volatility. > 1.2: IV may be underpriced. ~1.0: Fair, less edge. Calculate for each stock using 8-12 quarters. Sector patterns often consistent.
Buy far OTM options (e.g., 20%+ OTM) for pennies to cap extreme losses. Or use VIX calls as portfolio hedge. Cost is 5-10% of premium collected but protects against black swan events. Essential for portfolio approach.
Win rate (target 65-75%), profit factor (target > 1.5), expectancy per trade. Track by stock, sector, strategy, move ratio. Build database over 2-3 years. Optimize based on statistical patterns.
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