From CMLViz: October is historically the most volatile month of the year for stocks and 2018 is proving to be no different. On a stock specific note, Intel now has analysts strongly on two different sides — either it is making a comeback or it has lost ground forever to AMD. That may mean more volatility, but that has in fact created a pattern for Intel. Here is a nice look at historical volatility by Month for the Dow Jones Industrial Average:
Starting in September, peaking in October, and lasting through out the rest of the year, this has been a bumpy time for stocks. That volatility can be bottled and tested. Wed o so for Intel, and the results have been quite strong.
INTEL CORPORATION EARNINGS
In Intel Corporation (Nasdaq:INTC), irrespective of whether the earnings move was large or small, if we waited one-day after earnings and then back-tested going long a slightly out of the money strangle (buying an out of the money call and an out of the money put) using the options closest to two-weeks from expiration, the results were quite strong.
This back-test opens one-day after earnings were announced to try to find a stock that moves a lot after the earnings announcement.
Simply owning options after earnings, blindly, is likely not a good trade, but hand-picking the times and the stocks to do it in can be useful. We can test this approach without bias with a custom option back-test. Here is the timing set-up around earnings:
Rules
* Open the long 40 delta (out of the money) strangle one-calendar day after earnings.
* Close the strangle 14 calendar days after earnings.
* Use the options closest to 14 days from expiration.
This is a straight down the middle volatility bet — this trade wins if the stock is volatile the week following earnings and it will stand to lose if the stock is not volatile. This is not a silver bullet — it’s a trade that needs to be carefully examined.
