TPX - Straddle Seller - Bet Stock to $25

Discussion in 'Trading' started by livevol_ophir, Jan 5, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    The company averages ~1000 option contracts traded a day. In the first hour over 8600 have traded. The call:put ratio is 1:1. Further, the Net Premium is -$390,000 - people are selling vol.

    The day's biggest trades demonstrate that the Feb 25 straddle is getting sold @ 3.90 (1.85 in the puts, 2.05 in the calls). Note also that the OI (open interest) is well below the trade size - these are opening orders (at least in part).

    A look at the Charts illustrates the IV30 vs the HV30 divergence. You can also see that the stock has been on an upward trend. Finally, you can see how unusual this amount of option volume is.

    At Feb expiration the straddle sale wins if the stock is above 25 - 3.90 = 21.10 or below 25 + 3.90 = 28.90. A straddle seller bets that the stock goes directly to the short strike at expo - in this case 25. If not held to expiration, the straddle seller bets on decreasing volatility - in this case, a bet that the implied vol comes back down to meet the historical vol.

    You can details, trades, prices, charts on my blog: