Apple Earnings play

Discussion in 'Options' started by Optrader1, Apr 21, 2008.

  1. The sensitivity to vol is much greater in the Jan-series. Vega increases with duration. May vols will drop more, but gamma is much higher.
     
    #51     Apr 23, 2008
  2. Oh Ok, so you are looking at a mix of Vega and Gamma. The front month's drop in IV might be negated by the move in stock price/delta. And even if the Jan's IV will drop less, they will be less affected by move in price.
    So what kind of move can we expect for Jan's IV? I am trying to model a short ratioed straddle.
    Thanks again for your help/comments.
     
    #52     Apr 23, 2008
  3. YW. I would expect 400-500bp to be taken out of Jan09 vol.
     
    #53     Apr 23, 2008
  4. Is that a 4%-5% drop? not familiar with the "bp".
     
    #54     Apr 23, 2008
  5. Basis points. Yes, a drop of 4-5 vol points.
     
    #55     Apr 23, 2008
  6. Looks like it would have been better for you to wait until last minute to sell the straddle as they are bidding those up.
     
    #56     Apr 23, 2008
  7. amgrant

    amgrant

    A 4-5 point drop in volatility is quite accurate but I have always scratched my head wondering why people trade options this way. You've got about -107 vegas in your short Jan09 160 straddle so you'll make a whopping $500 per spread. There are safer and smarter ways to trade short volatility. I don't have enough fingers on my hands to count the number of people that have blown their accounts trading short straddles.
     
    #57     Apr 23, 2008
  8. What are the "safer and smarter ways"?
     
    #58     Apr 23, 2008
  9. Don't think you can blow out your account selling the JAN09 straddles here unless you use really bad position sizes. It is meant to be an overnight or 1- 2 day play if used. There are tons of ways to trade short volatility for sure but teh best one depends on so many factors it is hard to pick one to use in every case.
     
    #59     Apr 23, 2008
  10. I made $20 per contract on an upside 09 straddle in GOOG last quarter. $7 in GOOG this month pre-report [$126 to $119]. I considered the time fly but preferred to sell raw vega in the straddle. I sold a 20-lot.

    Ready for your recommendation. Preferably before they announce.
     
    #60     Apr 23, 2008