12/4/13
TOL reports earnings on 12/10 before market open.
It's showing 1-year support at 30.25 and 6-month resistance at 35.
However, IV Rank is low. Let's look at two different trades.
Trade 1
Our traditional pre-earnings iron condor. Normally iron condors work best in a high IV Rank environment. IV is likely to increase before 12/10 so it would be best to wait until 1-2 days before earnings to place a similar trade.
With a .50cr on a $1 spread the risk is only $50 per contract. The current theta for the position is only .42 so profits build slowly. Also, it's likely that vol will increase by 12/10, pushing our P/L negative. However, vol should collapse after earnings and reduce our buy-back cost.
Trade 2
In a low IV Rank environment we should be buying premium, not selling. Without a directional bias we can look at setting up a double diagonal.
With this trade our risk is doubled, but our probability of success is increased since our breakevens have been expanded. Theta is much higher at .97, and we should also benefit from any increase in vol.
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