Selling ATM Straddles

Incidently, the short straddle was how Nick Leeson bankrupted Barings Bank in 1995. He wrote a huge position just before the Kobe earthquake. Bad timing...

short straddle = good in a sideways non-volatile market. However, we know that such markets don't stay that way

 

Actually to correct the person above and make a point, Nick Leeson sold naked strangles I believe on the Nikkie to bankrupt Barings.

Naked straddles or naked strangles have pretty much the same risk with small differences. Both are naked options positions.

 

You may be right, but I am fairly-certain is was the 19,000 straddle that killed Barings.

 

Are you sure, Coach?

I am pretty sure he sold straddles. When they went against him, instead of covering, he bought futures to prop up the Nikkei.

If he had done the right thing and had taken a loss, Barings might still be around.

 

He accumulated more deltas by buying futures AFTER the quake. Malaysian-hedge.

 

One thing not mentioned here: it is much easier to hedge naked straddles than naked strangles.

 

The benefits of concavity.

 

Statistic / realised / actual / historic vol means the same thing to me - Namely the volatility of the underlying, when looking back over a given period.

I stand by the original statement regarding expectancy.

 

this thread is 10 pages long. at times it has approached academic discourse. overlook the obvious insult.

bottom line question is selling strangles or straddles a viable strategy and for whom?

 

are you not likely to hedge most of the profits away?