At 4:30 Intuitive Surgical (ISRG), maker of surgical robots, and at 5 PM Chipotle Mexican Grill (CMG), a spin-off of McDonalds three years ago, announce earnings. These guys can move on earnings.
Chipotle Mexican Grill
First, let’s look at past earnings announcements and the close to open change in price.
| Date | Open Price | Closing Price | C-> O Return |
| 2/14/2008 | 112.49 | 108.65 | |
| 2/15/2008 | 97.07 | 105.25 | -10.66% |
| 4/23/2008 | 116 | 109.9 | |
| 4/24/2008 | 107.21 | 100 | -2.45% |
| 7/23/2008 | 82.11 | 83.8 | |
| 7/24/2008 | 73.68 | 67.3 | -12.08% |
| 10/22/2008 | 42.91 | 41.08 | |
| 10/23/2008 | 42.28 | 44.29 | 2.92% |
| 2/11/2009 | 48.17 | 47.42 | |
| 2/12/2009 | 50.71 | 53.25 | 6.94% |
| 4/22/2009 | 80 | 85.5 | |
| 4/23/2009 | 92.39 | 85.31 | 8.06% |
It’s trading at 90 and the 90 August straddle goes for $10. So we could try a calendar at 80 and 100. (Click on the charts to enlarge).
If after earnings tonight, the volatility of the August options collapses to the September values the return graph for tomorrow is the colored curve. It is positive from 80 to 108. (Click on the charts to enlarge).
Return After Volatility Collapse
Intuitive Surgical
Here is a table of the last few returns from the close just before earnings to the open right after earnings are releases.
| Date | Open Price | Closing Price | C-> O Return |
| 10/18/2007 | 239.36 | 256.44 | |
| 10/19/2007 | 268.74 | 269.34 | 4.80% |
| 1/31/2008 | 229.05 | 254 | |
| 2/1/2008 | 292.73 | 305.61 | 15.25% |
| 4/17/2008 | 346.1 | 348.5 | |
| 4/18/2008 | 310.54 | 288.5 | -10.89% |
| 7/22/2008 | 278.52 | 280.23 | |
| 7/23/2008 | 313.49 | 331.13 | 11.87% |
| 10/16/2008 | 195.28 | 214.8 | |
| 10/17/2008 | 193.9 | 189.13 | -9.73% |
| 1/22/2009 | 97.99 | 96.01 | |
| 1/23/2009 | 88.08 | 93.29 | -8.26% |
| 4/16/2009 | 122.81 | 118 | |
| 4/17/2009 | 116.87 | 130.35 | -0.96% |
The ISRG straddle is selling for $22.50 or 13.3% the average move on earnings is 0.32%, but the average absolute move is 8.82%. So 13.3% is still high. They are expecting a large move. Let’s see what the dual calendar spread would do if we center it around 145 and 190. (Click on the charts to enlarge).
If the volatility collapses, we have:
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