Selling ATM Straddles

Discussion in 'Options' started by thejoker67, Apr 9, 2007.

  1. If I am SELLING the ATM straddle, is the probability of profit the same as BUYING the straddle?

    I've read Taleb, Natenberg, all posts by Maverick 74, and this seems to be the conclusion. This goes against traditional thinking that option sellers prosper more than option buyers, does it not?

    thejoker
     
  2. nitro

    nitro

    April fools day was on April 1, wasn't it?

    nitro
     
  3. Hi Nitro,

    Thanks for your message, but I did not understand as I am much less experienced than you, obviously.

    Are you saying I'm a fool because I should know that option sellers are obviously more advantaged OR that I should know that obviously that the odds are the same.

    Or can anyone else answer?

    Thank you,

    Torontoman
     
  4. I may wrong in this....but I'll take a shot.

    When you are BUYING an ATM Straddle, you are hoping for the underlying to make a big move, but not sure which direction.

    When you are SELLING an ATM Straddle, you want the underlying to stay flat and trade in a range.

    I think they are two different strategies.
     
  5. Div_Arb

    Div_Arb

    Why would you ever want to sell to open a straddle? Unlimited risk, and profits are capped! Terrible odds! If you want to sell some options, you should consider selling a strangle.
     
  6. A short straddle has a higher probability of making a profit than a long straddle. Unfortunately, it's not that simple.

    The short straddle has a limited profit potential and a large risk potential (lots of small winners and losers and an occasional killer loss, wiping out many small gains).

    The long straddle has a limited loss potential and a much larger potential gain (lots of smaller gains and losses, some larger losses and an occasional killer gain).

    Unless you clearly understand the risk and you're very agile with money managment and position adjustment, my two cents is to go with strangles and spreads. Mitigate the risk! Looking like a deer in the headlights when a naked position is crashing around you can be berry, berry unsettling :)
     
  7. There is no winner if the buyer and seller trade at a fairval implied figure = the realized vol to expiration. The atm straddle is the option market\'s $-representation of the forward vol on spot. This assumes the position is optimally-hedged in continuous time, which is absurd.
     
  8. What do unlimited risk and capped profits have to do with odds?

    Please justify why selling a strangle is better than selling a straddle.
     
  9. Right, and a strangle is somehow a magical improvement?
     
  10. Would you then agree with this statement?: In an infinite sample the ATM collection will equal all payouts.
     
    #10     Apr 9, 2007