MoMTS - I get your point on 'why was it high' - it was high because of forthcoming events; news on 26th, FDA in Nov. But isn't that the reason volatility (IV) was high to begin with, was the uncertainty? I keep reading to sell when options are expensive, which I take to mean high IV (and RNVS certainly had high IV), then I would expect an associated event to be lurking. So it appears that I'm missing the middle ground maybe (e.g., sell on overpriced, but 'not too far overpriced' - and I guess experience would say what those boundaries are) and going to the extremes.
If a long condor can't deal with the high IV and the move, then what would have been a better plan (without knowing the future of course)? I was choosing a neurtal strategy to try and accomodate a swing in underlaying price. And I was wrong, and several people managed to know it before hand that it was dangerous. Which brings me back to the IV was so high that there wasn't a safe trade, and I need to stay away from truely abnormal expremes....?
Making trades is not an exact science, so to speak, so there's no single best trade that works in this situation. It's always a bet. And, no, the volatility wasn't so high as to make it dangerous. Options are priced proportionately so you get compensated for the greater risk. As I mentioned before, the market priced in about a $9 move and the stock moved $10 so not that dangerous. The tricky part is that the move happens in an instant rather than taking a week so there's no time for any adjustments or stop-losses.
I must be doing something wrong with the calculations, since I don't get 9 as the average STD. Assuming it's 5 days until some event, like the news on the 26th, then .300 (IV) / 16 (SQRoot of 256) => 0.01875 .01875*2.24 (SQRoot of 5) = .042 daily IV 14 (approx value of RNVS at the time) 14 * .042 = .588 JB
You already asked that. It was the price of the ATM straddle. As MTE said, it's all about a bet. You place a long condor/fly/some type of range bound strat, and it's a bet that the vol fails to materialize. Long the straddle/strangle is a bet that vol is more than expected. Even if you remove the directional bias, you shift the risk to other not so transparent places. As for selling high IV, you have to differentiate between high IV and massive skew. This was massive skew, not just high IV.
Volatility was 300% so that's 3/16... not 0.3/16... Also, you need to take the number of days to expiry not to the event.