Re: Betting on Volatility
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say I'm sure enough to make a bet that the GOOG will go either up or down 2% tomorrow, is there a way to profit from that information?
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You can buy straddles (at the money put and at the money call) but you have to determine how much of a move the straddle already has priced into it. If it's only a 1% move you may have a play. If it's 3% probably not. Plus there is vega risk which may decrease after the news which hurts your straddle. You could get a bigger move but if enough volatility (vega) comes out it could still not work and inversely a smaller move that does work if vega increases. The closer to expiration the lesser the vega risk and more chance a bigger move will work.
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