The theta decay and crawl waiting for IV to expand is something that also leans me to not liking it. I think one way of looking at this is to find stocks with consistent IV expansions and contractions surrounding earnings. The ever famous GOOG is one candidate when you look at its historical IV. Someone like GE would be a crappy candidate. So I think more work would have to be done in the screening stage. I would also keep these small. If I were to do one now I would look only to MAR strangles if there was an earnings at or before expiration. Another factor which risk mentioned is having a portfolio of a bunch of these in small contracts so that you can ride IV ups and downs in small plays. I think the high IV entries are more frequent and better suited to this strategy than the lw IV entries but it is worth a try. I also think it is worth considering selling the inside/outside strangle in addition to looking into selling the inside straddle to roll into the appropriate condor.
FYI. Re-modelled projections for my OIH 150 combo (static vols). Contrary to what I asserted earlier, I will NOT be converting by close today. WILL be naked over a second weekend. Conversion/offsetting currently not worth it. Now looking to convert perhaps on Tuesday for further ~$1 in opportunity gains (~.60 body + ~.40 wings) to attain fly for <1$ net debit. Seems to have found short-term support circa 145 and currently at 150.83 so behaving nicely and still consistent with putting on a fly. 140/160 strangle remains in sights. Probably first and last position I will report on until I get my own journal MoMoney.
Sure, a replication play buying cheap gamma in low-vol tickers, selling fat-gamma in these high IV tickers. You're long the volatility and gamma box, but long correlation as well. It's quite possible that the paired-strategies will exhibit -corr which may overwhelm the +box attributes and produce an oscillator value outside of nominal values. Analogous to an on/off the run Treasury convergence trade, or a divergent crop spread in grains blowing out -- it's quite possible to lose on both, but obviously somewhat improbable. Unfortunately, it's much less of a closed system than a pure dispersion trade[can be].
Thanks for the reply. I'll look at this stuff a bit more when I get back from Cabo (leaving tomorrow morning), or while I'm there if my laptop will work out at sea with fish guts and cervesa spilled all over it!
Coming up to Wed for new screens on IV candidates. FEB expiration is kind of close so should be interesting mix if theta vega plays. Nothing of interest came up on my screen today. ACL is still there trading at $125 with high vols and earnings to be released on WED. SHould be a nice IV contraction and theta if you hold through the week and ACL does not move more than $5 or so. Straddle is trading around $8.00 so not as attractive as it was last week.
Just wanted to add a collective "thanks" for the on-going discussions. I'll need to re-read Nattenberg and then re-read this thread, but hopefully I'll be able to take a lot more from it than what I've gotten on an initial, cursory read; while I get the basics, I'm still lost when it comes to the intricacies. Thanks again, Steve
FYI RE: OIH 150 straddle update Stopped out on accumulated deltas (50+). Offset straddle for scratch. Stat vols seeming to be even greater than implied at the moment. Position also hurt by adverse move in IV due to recent political activity. Near 500 basis points over initial sale. May opt to re-straddle at 145? or just leave alone till situation becomes clearer.
MRVL came up on my screen with really high vols. Earnings are due out 2/22 I believe which presents a problem. FEB optiosn expire before earnings so vols are much lower than MAR vols which are in the 60s. The ATM straddle is selling for $10 but being 37 days out there will not be much theta or IV contraction. May have to park this in the mental file and just watch it.
MRVL came up for me too. In addition: WWY, RTP, CI, GRMN, ESRX and ACL is still there. All for March straddles. EOD data as input. Filter different to Riskarb's. Basic details are: Stock Price > $60 OI > 500 IV/HV ratio > 1.15 IV in relation to last year > 80th percentile i.e. this looks at where IV is in relation to past IV and also in relation to historical FWIW. Haven't looked in detail at any of these to see if any viable yet. MoMoney.