long and short straddles on bull and bear funds

Discussion in 'Options' started by stevenpaul, Sep 7, 2010.

  1. Hi traders,

    Would there be any use in buying a straddle on say FAS, whose ATM puts and calls have an IV of about 76 and shorting a straddle on FAZ (of the same expiration), whose ATM options have an IV of 87? These bull and bear funds have different IVs, but their performance is supposed to be the same. Thus, considering each underlying should make the same size move, it would seem the one with the higher IV is overpriced, and vice versa. Would the difference in the IVs resolve in a profit by expiration, and would the profit be worthwhile?

    Thanks for your thoughts.
  2. ...do you factor in the cycle movement of fas/faz, it looks like now fas could be heading down and faz heading up...