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  #1  
Old 11-14-2007, 03:51 PM
Jestli Jestli is offline
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Default buying options straddles

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?
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  #2  
Old 11-14-2007, 03:53 PM
CrushinFelt CrushinFelt is offline
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Default Re: buying options straddles

show some data?
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  #3  
Old 11-14-2007, 04:00 PM
ahnuld ahnuld is offline
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Default Re: buying options straddles

the higher the volatility of the stock the greater the cost of the option. You pay extra for extra volatile stocks.
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Old 11-14-2007, 04:14 PM
mrbaseball mrbaseball is offline
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Default Re: buying options straddles

"is there any downside to this?"

It's called "time decay". Options erode in value over time. If the underlying instrument doesn't move much you can get anhilated. Often you will need a very large move and/or volatility spike for these to work out. I am often long atm straddles but am also always short something else to help offset said time decay.

Do some research. Pick some instruments you would be interested in buy straddles on and see how they react. Also read a good options book.
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  #5  
Old 11-14-2007, 04:27 PM
Jestli Jestli is offline
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Default Re: buying options straddles

AKAM beta of 3.95 bought UMULG.OPA at 300 on the 12th sold for 360 on the 13th

NVDA beta of 3.45 bought UVAWG.OPA at 155 on the 9th and sold later that day at 185, rebought at 210 then sold on the 12th at 330. UVAWF.OPA at 55 on 12th sold 75 on 13th

RIMM beta of 1.74 bought PUT RULKD.opa at 610 8th sold at 440 on 9th. RULWD.OPA on 8th at 530 sold 9th at 845. RULKL.OPA on 12th at 435 sold 13th at 750.

i dont know if all that makes sense to anyone.

but it seems that you lose your initial investment as always with any option but with a straddle and a stock that is very volatile its bound to go significantly up or down and you get that benefit
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  #6  
Old 11-14-2007, 04:34 PM
ahnuld ahnuld is offline
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Default Re: buying options straddles

yes but you pay extra for that benefit. no free lunch.
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  #7  
Old 11-14-2007, 04:42 PM
Jestli Jestli is offline
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Default Re: buying options straddles

i know you have to pay the initial investment on both the call and put, but putting that limit on your risk and having unlimited leveraged benefit seems almost too good to be true
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  #8  
Old 11-14-2007, 04:44 PM
ahnuld ahnuld is offline
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Default Re: buying options straddles

except most of the time you wont cover the costs of buying the straddle. Options are a zero sum game, if it was this simple do you think anyone would write options?
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  #9  
Old 11-14-2007, 04:54 PM
Jestli Jestli is offline
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Default Re: buying options straddles

i know its not that simple or easy nothing is and everything has risk but people write a call when bearish and write a put when bullish, if you dont think the market was gonna move you could write a straddle, so im just saying with those highly volatile stocks that are really movers it seems like a good move
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  #10  
Old 11-14-2007, 05:19 PM
skindog skindog is offline
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Default Re: buying options straddles

The cost of a stock's time premium goes up as the stock's volatility goes up. So like Ahnuld said, there is no such thing as a free lunch.

You should pick up an options book!
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