RNVS - volatility

BAM!

Thanks guys!

 

Guess in the future, with such high IV, a better play to consider(prior to the event making it evident) would have been a straddle/strangle or short butterfly/condo?

I mean, I know it's clearly evident now, but prior, should that really have been my consideration given the high IV?

JB

 

A straddle doesn't always work. When you buy a straddle you bet that the realized volatility will be higher than implied so if the market overpices the straddle and you overpay then you'd be lucky to breakeven. For example, the stock moved about $10, while the straddle was trading at about $9 a few days ago (if I remember correctly), which means that it would have been profitable, but only marginally, depending on the exact pricing and bid/ask spreads.

 

I took a small flyer, 200 @ 3.52 and 200 @ 3.55. Got a book of 3.50.

 

I have yet to actually try one, but a ratio spread seems to be theoretically a bit better than selling a straddle. You don't need quite so large of a move.

 

So I guess I was taking the phrase "sell high volatility, buy low volatility" too literally; at some point, it becomes so high that it's too dangerous to deal with from a selling viewpoint.

Any comments on this? I've tried several times now to utilize a 'sell on high volatilty", and have either been burned, or prevented via recommendations received here, like this morning's save.

I've tried selling verticals on high volatility, and now long butterflies.....so I'm coming to the conclusion I'm just taking things too literally; there's a point at which, through experience I should be able to say - "yes, it's high, but it's way too high to sell safely."

Also, regarding the comment concerning the straddle only just being profitable - man! That's a shocker to me; if a $10. move, or around 66% isn't enough, then guess I'll stay away from those, 'cause it doesn't look like I could ever really expect that strategy to work out!

Thanks again everyone!

 

Why was volatility high - what is it a reflection of - what is the market telling you?

 

Well, most likely the vol on RNVS would've deflated if the news turned out to be a non-event and you would've had a winner. In your case here, you expected RNVS not to move, that forecast was wrong. You still need to take direction into account. To just say sell high vol, buy low vol isn't enough to be profitable. You still need to have some directional bias to be correct.

 

I would have to differ on opinion with this point.

 

Cool, would love to hear it. I guess one point to make is that by directional bias, I also mean neutral.