By Jon Ogg of
Baidu at $76 leaves the closest straddle strike at $75 for August. The straddle can be sold for more than $10, broken down as $5 for the call and $4.60 for the put. As long as you don't have a run above $85 or a drop to under $65 you win. The risk-reward matrix there is actually only a "weak positive" based on its volatility after earnings. Amazon generates a less-exciting premium of "only" $12 by selling volatility via the Aug. $120 straddle. With shares at $120.15, writers of options can collect $6.05 for the call and $6.00 for the put. Call it $12 for rounding. If Amazon does not rise above $132 or fall under $108, you win. While Amazon is still down 20% from its 52-week highs and up over 55% from its 52-week lows, each day this is a more and more mature company. Theory is dangerous to rely upon as fact when valuations are still elevated, something that cannot be ignored. The real trick is when you "place your bet." Selling a strike too far ahead of the earnings event leaves you market risk, which is not something that is recommended for volatility bets based on a static snapshot into a single event. Generally, this is something that should be handled in the last hours before the event. If the volatility dwindles or spikes and if the price handles change, strategies have to adapt to those changes. As of this writing, Jon Ogg did not own a position in any of the stocks named here.