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Volatility Expansion | Earnings

Market Measures

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As earnings approach, we know that volatility will expand as uncertainty around the announcement grows. Knowing this, is there anyway that we can get long volatility before the announcement to take advantage of this expansion in volatility?

Today, Tom Sosnoff and Tony Battista see if buying a straddle one month before an earnings announcement, in order to take advantage of a rise in volatility, is a viable strategy. First, the guys put some numbers around how much Implied Volatility (IV) actually increases. Next, the guys test a strategy of buying a straddle 30 days before the announcement and closing it the day before the announcement was a viable strategy to get long volatility. However after looking at the results, they find that even though volatility expands buying a straddle is not a profitable strategy!

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