Earnings: IC vs Short Strangle

Discussion in 'Options' started by dbh21, Feb 20, 2012.

  1. newwurldmn

    newwurldmn

    It's the golden company from Idocracy (which, if you haven't seen I recommend at least for it's premise).

    He might have had a reasoning. The biotech guys I had spoken too didn't have a clear view on this one.
     
    #51     Feb 25, 2012
  2. One can calculate the expected move- Taleb and Sinclair provide some formulas in his book but its basically similar to adding variances- nothing crazy.

    But even that only gives an expected move of about $6.

    O well if he made money on it, good for him.
     
    #52     Feb 25, 2012
  3. 0.4*vola*sqrt(T) for ATM. *2 for the combo. Or you could simply use the 0delta straddle premium. Conservative and more practical. You can also approximate easily. :p
     
    #53     Feb 25, 2012
  4. Ha! Id forgotten about that dirty way of calculating the price...

    And exactly what a straddle effectively implies

    So that's 4 pros here and counting...
     
    #54     Feb 25, 2012
  5. That's conservative, as you won't likely be over 90D (upside). You can always what-if for the expected extrinsic (2*P in this case) and shave that off the straddle premium. A bit less dirty.

    They got it wrong in VVUS' case, and they normally do in these biotechs under $15/share.
     
    #55     Feb 25, 2012
  6. The anti-turducken pill. Paula Deen should be working for VVUS.
     
    #56     Feb 25, 2012
  7. newwurldmn

    newwurldmn

    I always used the 2 maturity method.
     
    #57     Feb 25, 2012
  8. newwurldmn

    newwurldmn

    Sometimes they are spot on. MVDN in 2010 was priced for a $35 move. It moved like $34.5. They got the maturity wrong. HGSI they priced high going into the FDA approval. HGSI into a lot of the data was priced correctly. Even VVUS, if i remember, was priced correctly going into the data. I forgot how the first FDA approval was priced. I don't think anyone expected sucha resounding recommendation. It was a tail event, kind of like ITMN in 2010 when the FDA issued a complete response letter for a third trial. The tail event that made the straddles look cheap and wasn't really expected by anyone.
     
    #58     Feb 25, 2012
  9. newwurldmn

    newwurldmn

    Yeah. Determing this type of information from options markets is the easy part. Figuring out if the markets are wrong is much harder. Personally I think this name is a short here, though I'm not short yet (going on holiday for two weeks starting on Thursday).
     
    #59     Feb 25, 2012
  10. Hey, a recent example would also be AAPl too. The recent earnings had an expected move of $35 and actually moved around $34. My ICs on paper trade made a handsome profit.

    I wonder if PCLN this monday is priced in correctly. I've never tried this strategy, but would a Double Diagonal make sense in this case? Sell front month vol and buy back month vol?
     
    #60     Feb 26, 2012