But when the scandle news hit, IV should go down, b/c now there's no uncertainty...everyone's trying to get out. So, if the MM's short IV, they should make money. Right? Do you think I have the beginnings of a good options trader? Like this song: http://www.youtube.com/watch?v=gmeDln0xjyE&feature=related
Didn't the stock drop from about $25 to zero in a few weeks? Doesn't sound to me like a fun time to be short volatility.
Scratch that...I'd just buy up all the calls and puts, and hedge by shorting the stock. Then I should make a pretty penny from the surge in IV.
I read the Yahoo message boards. LOL, a real circus. Anyhow, many traders there put straddles on ARNA, Arena Pharmaceuticals, for their announcement Monday. Obesity-wonder drug. Easy money right? I checked it out on IB (hell I want to make easy money too), I think IV was 200% higher than historic. Sure enough, report comes out, turn out it isn't a blockbuster drug right off the bat.... Calls down 90%, puts barely move. A short straddle would have worked, definitely. On the flip side, if they met the 5% criteria for fat loss or whatever metric it was that they missed.....stock would have jumped to $10 easy (was $4) and you'd be screwed. No free lunch for me. I'm a rookie, but I think that for pharmas, you'd have to be johnny on the spot for announcements of upcoming trial data releases and then enter spreads ASAP...otherwise IV shoots and you don't have a shot. * optionslam.com is a website all about straddles before earnings. Optionetics website also has a straddle talk forum, good information there. They have threads from 2-4 years ago of people doing this strategy.
That's why I only plan on doing short straddles when I'm a professional for a market-making firm...then I'd have quick access to research, and extremely fast equipment. Did anyone like the music I posted?