Poll: Best Options trade

Discussion in 'Options' started by xtrhvydty, May 2, 2006.

What's the best trade?

Poll closed May 9, 2006.
  1. Near-term ATM Straddle

    7 vote(s)
  2. Next month ATM Straddle

    11 vote(s)
  3. Near-term Strangle

    2 vote(s)
  4. Next month Strangle

    2 vote(s)
  5. Near term outside Strangle (one more strike OTM)

    3 vote(s)
  6. Next month outside Strangle

    2 vote(s)
  1. Assumptions:

    1. Options are at all time low IV
    2. We assume the HV and IV WILL explode over the next 2 weeks, but we don't know exactly when. We have no directional bias.
    3. The stock is holding steady at the ATM option
    4. Expiration is in 3 weeks for the near term option.

    Which of these trades has the best Reward/Risk ratio, from your experience, over the long run? Please explain.

    Many Thx
  2. pls note this is meant to inquire "from experience", and not just what the Option pricing models predict. I'm more interested in the theory vs. pricing model viewpoint.
    thx again
  3. Easy
  4. Maverick74


    Your question is not valid.
  5. But how do you know that the IV WILL explode over the next 2 weeks? For IV to explode unexpected news has to come out and blindside everyone. The only way you could know this is from inside information.
  6. cnms2


    To profit from options you have to correctly forecast the underlying's price and options' implied volatility over the life of your position.

    Once you decide on your forecast, plug the positions you're considering in an options analyzer, or use an options calculator and draw their pay-off graphs. Compare those graphs and pick the one that has the reward / risk that suits you best.

    There's no a priori better expectancy trade, and no amount of "experience" will change it.
  7. MTE


    Good point. Unless something unexpected happens you cannot have both an IV and HV exploding. If it is expected, like earnings, then only the HV will increase, while the IV will get crushed.
  8. Reverse Calendar into event (one day)
  9. Given the assumptions, would anyone consider trading the short near term straddle against the long third-month straddle?
  10. Depending on the relative increse in IV and SV. If IV > SV, a back month may outperform. If SV > IV, a near-term position would be indicated, but it's always a gamble.

    A near-term strangle may outperform all if implied-vols are trading at very low levels -- the gamma[dgamma curvature] become very leveraged.
    #10     May 5, 2006