|
|
|
|
#1
11-14-2007, 06:20 PM
|
|||
|
|||
Re: buying options straddles
[ QUOTE ]
is there any downside to this? it seems buying straddles on companies with beta > 3 is very profitable with there being the limited loss and unlimited gains am i missing something? [/ QUOTE ] Imputed in the price of the options is an implied volitility. If volitility is greater than that which is implied in the price of the option you will gain, otherwise you will lose. Over the long run I would bet the market's estimate of volitility will be better than yours. 
|
|
#3
11-14-2007, 11:58 PM
|
|||
|
|||
|
Re: buying options straddles
[ QUOTE ]
so between time decay and impied volatility being added to the price it makes it difficult to make a lot of money? . . . unless there happens to be a huge jump, [/ QUOTE ] Difficult yes, hardly possible, no. Personally I take a chance on estimating the next direction the stock will move and buy accordingly. If I am wrong tuff luck but the times I am correct I have eliminated both the time value decay and volatility premiums. I make much more profit the times I am correct than I lose the times I am wrong. My best results naturally come in the last week before expiration and in volatile times like this week, the conditions have been perfect. Jimbo
|
|
#4
11-15-2007, 01:32 PM
|
|||
|
|||
|
The volatility is priced in
The premium for any option includes a consideration of the expected volatility of the underlying issue.
As time wanes this premium decays and this is the main reason you can be right about an option trade and still lose money. When you buy a straddle you pay a double premium so you must have double the expected volatility to succeed. While it is almost a certainty that the underlying price will move during the life of the straddle, the question is will it move enough to pay the double premium and still leave a profit. The Options Market Makers are not in business to make you money, the are in the business to take money from traders with such naive ideas.
|
 |
|
|
Hybrid Mode
