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Eastern NE | Buying premium ahead of a report is like buying premium before an earnings announcement. You have to be BOTH directionally correct, and distance of move to overcome the substantial implied volatility erosion as soon as the event is over. For example, I sold the Nov 890 put and 1050 call this morning for a total of 6 cents. As of now I still have the position on and have the same penny of profit. The difference is, I didn't sweat over the direction of the market but instead picked my strikes based on where I thought the market WOULDN'T go. Probabilities are in my favor as a seller, not a buyer. Keep in mind that this strategy has a different risk profile, but has a high probability of profit. Now that the report is out the position wil likely trade at 3 cents by the end of the week. The chances of beans going to 890 or 1050 are slim, and I will exit the trade well before expiration. Just some food for thought from a different perspective. | |
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Puts and calls around a report
