Very conflicting forces right now as far as volatility is concerned.

On one hand, it’s a big earnings week, and the chance of having the next GOOG find you will put a bid under many names. And we have a genuinely shaky market.

On the flip side, the first week post expiration is the single worst time to own any options paper. Buy writes get rolled, the dollar premiums in the near month now look good, et. al. And it’s summer, in which the default setting is always on Slow. Add in that we have A Bottom down below, and it’s a recipe to sell options now and hedge later if something gets violated.

AAPL yesterday was interesting ahead of the number. The stock did not behave well at all, yet August volatility actually ticked down a bit ahead of the number, from the mid to the low 50’s. The breakeven numbers I looked at were pre-open, and suggested about a 10% was priced in. But by the end of the day, it was probably more like 8%, so the move was pretty close to in line.

Remember though, the goal is not to predict how far the stock will move, just to give a guideline as to what the market expects. So as much as I like to bathe in all sorts of credit adulation and act like I got everything right (sarcasm intended), all I did was interpret what the screen told us. The value added is to give a pre-earnings options play a clearer risk/reward picture.

Drifting volatility ahead of the numbers on this particular week in the cycle was a common pattern in the bubble aftermath. QCOM and some of the Semi Stars used to do this all the time, if memory serves me correctly.

So just be forewarned, prices may get to the point where the risk/reward of selling gamma ahead of earnings may make no sense. I rarely buy gamma ahead of numbers, but if you are into that, some opportunities should arise.