I have been unable to locate historical option prices so I'm having a hard time answering my question on my own. I have a few fairly liquid Nasdaq stocks that I swing trade on "significant" dips. Some will be down as much as 30-40% on a given day. So my question in a nutshell is, will buying calls on a stock that is down sharply be worthwhile or will volatility eat me alive? How can I calculate how much I'm paying for volatility throughout the day? I'm looking at current month ATMs. Thanks.
To see if current volitility is high compare the current ATM volitility with one ATM several months out. You need pretty current volitility figures for this and it is only rough. If volitility is high try a spread to help offset it. deltaneutral.com has a tool that helps with this that had a free trial this weekend. I am not associated with them but use the tool.
If you are trading stocks that are down 30-40% in a day they must be pretty cheap stocks. IF that's the case, I wouldn't even consider the options if indeed there are any. If so, tread very carefully. Just my opinion
i have all optionable stocks, all strikes, all months for 1 year about 1Gb in Access format... i think volatility will eat everything, but why unstead buying call, sell put? if it moves higher-you will take advantage from both sides-price and IV. BTW-as swing trader, you must have statistics-how many stocks rise after such drop. and i bet-not so many.
Risky. Selling puts on JNJ on the big dips over the past several years could have worked out nicely I suppose. If wrong you are hurt.
i agree,that why i mentioned statistics. from my expirience -1 out of 10 will snap back in next few days...... usually-they never come back)))))
First :A stock that goes down 30-40% in a given day must have a good reason to tank that much. Second : For buying front month calls ATM in this case, you will have the volatility and the theta against you. You may get lucky once a while, but in the long run, it may not be profitable. On the other hand, selling puts will make volatility and theta working for you, but still ... scary! That's just my humble opinion. Cheers!!