Monday, April 19, 2010

Werner (WERN) - Earnings Preview; Back Spreading

WERN is trading 23.44 with IV30™ up 1 point and earnings AMC today. The LIVEVOL™ Pro Summary is below.

I was asked if selling earnings vol is always a winner - here is an example where it isn't. The Earnings & Dividends Tab snap is included (click to enlarge).

What we're lookin' at:
(1) The top ROW is WERN stock price 5 trading days before earnings through 5 trading days after.
(2) The second ROW are the front 2 month ATM straddles for the same period - focus on purple - the front month.

(3) The third ROW is the implied vol for those straddles - focus on the red - the front month. NOTE: The red line always collapses after earnings - this is called the vol crush after earnings.

You can see that buying the WERN straddle the last three times has been a winner. The stats for buying the straddle one day pre-earnings and selling the next are included.

The average is a little misleading because of the 10-19-2010 cycle, but still, the other two were nice wins. Two very big caveats with this stock:

(1) The markets are really wide and very illiquid - getting the straddle off for fair value seems pretty hard for any kind of size - even small. So buying and selling for fair value seems border line impossible.

(2) From glancing at it, selling the straddle the three times before these most recent three was in fact a winner. So it flip-flopped.

I posted this one more as an example that selling earnings vol isn't always a winner.

This is trade analysis, not a recommendation.

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