YELP Earnings Play

10/29/13

YELP earnings get reported today after market close.

Looking at the option chain:

1. The NOV1 options have the highest IV at 177%
2. The 'normal' IV is around 75%
3. The expected MMM after earnings is 8.81
4. YELP is likely to move 9.45 in the next 3 days

With an expected vol crush of around 100 points we'll setup an non-directionally biased iron condor with the short strikes at 84% OTM and at least 9.5 points away.

• STO Nov1 80 C (84.8% OTM, >11 points up)
• BTO Nov1 85 C
• STO Nov1 57.5 P (85.3% OTM, >11 points down)
• BTO Nov1 52.5 P
• Credit = 1.15
• Risk = 385
• ROR = 115/385 = 30%

With only 2 additional days until expiration, we can let it ride if YELP fails to move after earnings. Otherwise, we'll look to close the farthest OTM short for .05 or less. If YELP does move as expected we want to close early with at least a 25% profit.

Update: 10/30/13

Last night, YELP reported a loss of -$0.04, estimated to be -$0.012. It opened down -4.60, immediately dropped another -1.50, but then slowly recovered during the day. It closed at 67.05, -1.78 from the previous day. The NOV1 IV dropped to 73%, 104 points lower in 1 day.

Update: 10/31/13

After open, YELP dropped -3 points in the first 30 minutes, but then rebounded. In order to remove our risk I bought back both shorts for .05 each. That leaves me long the 52.5 P and 85 C as a lottery ticket.

• BTC Nov1 80 C @ .05
• BTC Nov1 57.5 P @ .05
• Net = 115 - 10 = $105
• ROR = 105/385 = 27%