RNVS - volatility

Discussion in 'Options' started by JavaBen, Oct 20, 2006.

  1. JavaBen


    If I assume the volatilty on RNVS will fall after 10/26, and I can't follow watch my trades all day (I'm not a full time trader), then would an appropriate trade to for this be to enter a butterfly?
  2. MTE


    It depends on what you expect the stock to do!?
  3. JavaBen


    Sorry - should have stated this; thanks for asking. I'm assuming the IV will fall, and the stock will stay near to where it is currently trading.

    So, if I'm really asking, if I assume the stock is going to trade in a fairly narrow range until the Nov expiration, and the IV as high, then would this be an appropriate strategy to capture the high IV?
  4. jj90


    Market's pricing in a ~$9 move. Of course that is if you believe the market's right. Personally I'd fly or condor, but those IVs makes one think twice.

    Just reread your post again, and yes a fly/condor is good for that situation. You do know there is drug test results due out on this no?
  5. JavaBen


    jj90 - thanks for the response!

    Was aware of the upcoming conference call 10/26, but not the nov drug info, so thanks for that too!

    Had originally thought of a straddle, since the high IV certainly implied a large amount of uncertainty and potential move, but then felt like the high IV would fall after the 10/26 conference; looks like I was probably attributing the high IV to the wrong event, so maybe the condor isn't too bad an idea after all.....
  6. How does a 10/15/20 Iron Butterfly sound?

    Max profit at 15 is 4.35, max loss is .65. B/E points at just below 11 and just above 19.

    Edit: Note these are TOS midpoint prices.
  7. JavaBen


    jj90, when you said Market's pricing in a ~$9 move. , how did you determine this value? I don't know how to do that.
  8. JavaBen



    I'm not very knowledgable, but I will certainly research your suggestion!
  9. jj90


    Look at the price for the ATM straddle.
  10. JavaBen


    With RNVS currently trading around 14.75..

    Using TOS for risk analysis for condors, comparing a condor built using calls vs puts:

    Nov call 12/15/17.5/20, the TOS midpoint is around .45 debit. Approx profit would be $200, vs a max loss of $45.

    It appears like a simular risk graph is associated with a Nov put 17.5/15/12.5/10 has a debit of .10. Approx profit would be $250, and mx loss would b $0.

    I understand I may not be able to execute the trades at those values.

    My questions is actually concerning the risk. Is one of these inheritantly more risky then the other?
    #10     Oct 23, 2006