Another day, another profitable non-directional. This time I'll focus on SPLK. SPLK was not my type of ideal setup for a non-directional play as the earnings news had come out AMC a day prior and the results seemed to be generally good as opposed to the mixed results I prefer to play.
SPLK announced earnings on August 28 AMC which apparently the street liked. The stock closed at 45.27 and hit an ETH high of 50.25. On the morning of Friday August 29 BMO, the stock pulled back a bit and was trading around 49.60, dropping to a low of 47.67, bouncing back up to 49 before hovering around the 48.50 level just prior to market open. This was on relatively low volume (weak price discovery), as SPLK traded more shares in the first half hour than it did in all of the AMC/BMO trade.
During the pre-market, I checked the past 8 post-earnings greatest absolute value moves. I don't mean the gap move from prior close to market open. I mean the biggest move it made during the day after posting earnings. And SPLK made some MASSIVE moves. Starting with most recent, from the open to either the low of the day or high of the day, which ever was greater, SPLK moved: 12.7%, 10.7%, 7.1%, 5.5%, 6.8%, and 5.4%. Again, this isn't the gap move from the prior day's close but from market open to either HOD or LOD.
SPLK opens with IV at 50%, indicating an expected move of 3.2% by day's end. This would be the smallest move for SPLK in two years. As soon as I saw this I tried to load up on a .50 wide strangle. Once again, the stock price volatility on the open proved difficult to box into a .50 wide strangle. I wanted a 50/49.50 strangle but failed to adjust my put side and ended up with 50/49 strangle that I was only partially filled on. Once I realized my mistake after seeing 70% of my order filled, I canceled the rest of my order. Within 10 minutes, my sell limit was triggered for +50%. Had I left my position on for two more hours, I would have cleared a 400% profit. Yet again, the options market was massively underpriced off the open as the stock made a greatest absolute value move of 12.7% on the day, opening at 48.72 and hitting a day high of 54.95 about 2.5hrs after the open.
Like I've said before, it's not like this is a once a week opportunity. These opportunities crop up almost daily, generally due to either inefficiency in a stock's price or inefficiency in a stock's implied volatility. I continue to believe that the pre and post market trade continue to be some of the most inefficient markets around and allow for awesome non-directional entries on the open for retail schlubs like myself.