Goldman Sachs EPS Play
Last week I wrote about a way to trade the EPS announcement on Goldman Sachs (GS). To review we simultaneously sell the June 165 Put and the June 190 Call for a total credit of $3.12 per contract. This trade is not price directional but volatility directional. We are selling the premium high and buying it low. At the time of the initial trade the June Implied Volatility was 61.75%. As of yesterday's close the Implied Volatility (IV) was 79.98%.
At 9:45 AM after the EPS release the June IV has declined to 49.01% and the position became profitable by $1047. With only four days left until expiration we could hold onto the position to capture the max return of $1,560 at expiration. However, with so much downside room before the put strike comed into play could simply close out the call and hold onto the short put until expiration. But there isn't that much extra return to incur the additional margin requirement. However, the strategy is to capture the initial drop in IV. Since that has occured there is no reason to hold out for more and be greedy.