8 Minute Read

Tackle Today: How Volatility Trades Work

July 21, 2022

By | No Comments

«Volatility is magnitude, not direction.»

Traders,

We’re in the thick of earnings season, and price gaps litter the landscape. Some companies deliver the goods, and their share prices jump overnight. Others dare to disappoint and get punished accordingly. When it comes to betting on the earnings announcement, many veterans avoid direction and bet instead on volatility.

It’s all about the magnitude of the move, and it’s pretty simple.

Heading into earnings, the options market prices in a certain amount of movement, commonly called the Market Maker Move (MMM).

  • Long Volatility trades like debit condors and inverted flies bet that the stock will move more than expected.
  • Short volatility trades like iron condors and short strangles bet the stock will move less than expected.

Take Tesla, for instance. The EV giant reported earnings last night. Heading into the number, the MMM was $39.26. As I write this on Wednesday evening, Tesla shares are only up $10 after hours. Assuming prices open at the same level on Thursday, short volatility positions will come out as the big winners.

Traders harnessing long vol positions will awake to disappointment and losses. Tesla didn’t move enough.


Video Of The Day: Jedi Options – Rolling Up Covered Calls

In today’s Jedi Options, Coach Tyler explains what rolling up covered call is.


Chart of the Day: Tesla’s Expected Move ($TSLA)

Chart of the Day: Tesla’s Expected Move ($TSLA MMM)

The Thinkorswim options chain shows the Market Maker Move at the top. Tesla’s options were baking in an overnight rise/fall of $39.


Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Cashflow Club 8:30 PM EST

Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

Chart Modal

Tackle Trading

Book a FREE Consultation

Sign up for a free consultation to build your Educational Plan.