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Unbelieveable ! The dollar cost of an option is almost irrelevant; it’s the implied volatility value that is the only true cost measure. In the “edge” debate on this thread IV has been dismissed many times just because the future volatility cannot be known in advance. While obviously...

It's actually the other way around. And how exactly could you expect anyone to predict your options trade when you hadn't given your view on the stock ? LOL ! "Mere IV" (?) You'll be fishing a long time I suspect !

Indeed it can only ever be know after the fact (HV that is), but that doesn't make it irrelevant. IV is EVERYTHING, absolutely EVERYTHING in trading options ! You cannot increase expectancy by buying a relative higher IV. That is exactly the case with the "Close the straddle or buy a strangle"...

smilingsynic There are many options (excuse the pun). But if you're following the thread the debate is about adding a positive expectancy to what was initially a negative expectancy. The example cited does no such thing.

Absolutely ! But buying a strangle at a higher IV than one could close the straddle for doesn't add a positive expectancy, on the contrary. Perhaps it just wasn't a very good example that DV used to illustrate the point.

What would you bring to the party ?

Agreed ! In your example you're thinking of closing a short straddle profitably, presumably because you think the profit will be erroded by spot movement. Now, in that circumstance I'd close the straddle, rather than go long a strangle. Why ? Because I'd otherwise be paying a higher vol (the...

The problem with this thread is that there's so much going on it's easy to lose the plot :confused:. I'll re-post the original quote... IV has everything to do with it ! If your short straddle could be closed at 10% vol, do you really think you're adding value / improving the position by going...

The greeks have nothing to to with expectancy. Expectancy is determined by probabilities derived from the normal distibution curve which is a function of volatility. Greeks assist in managing an option trade, for example by calculating a new option price given changing condition (IV up/Dn, spot...

Don't agree. It's either a good time to be selling options or a good time to be buying - it's never both ! Where long term option trading profitability ultimately depends on IV over HV (sold verses bought that is), in your example above you'd be paying a higher vol than you'd sold - a sure...

True, but does that change the zero sum fact ? The net wealth of the option buyer and seller won't change when an option trade is complete. One will gain, the other will lose, and this principle holds good no matter how many times the option changes hands. The fact that one party is "happy"...

That doesn't change expectancy. Expectancy is at the point in time the trade is made. If I can use an example you recently quoted with the dice. If you buy the bet for $4 you'd have a negative expectancy. If it landed a 6 and you then "locked" the profit does that then make it a positive...

Any chance you could provide a worked example ? Why not use a daily range probability given an assumed volatility in the underlying ? e.g. Using a xx% vol, a 1 StDev range will be xx, 1.5 StDev range will be... and so on ?

What is it ?

spreadgod See appendix 1: Fair value calculation - for a pure cash offer... http://www.liffe.com/trade/specs/corpactions.pdf In particular step 2.

I would have thought it only right and fair to have a reasonable time value refund, determined similarly to the LIFFE equity options policy. I'm amazed ! Or am I ? Actually not !

The article is misleading in the extreme ! What does or doesn't expiry OTM is meaningless. Options are constantly exercised and closed prior to expiry. Of the open interest that does expire worthless.... that tells you nothing of profitability (or otherwise), in other words who won - buyer or...

I only trade the UK so accept that things may be different in the US. However, in your example above, the 35 calls would have some time value where the offer went unconditional prior to the option expiry date. It is this time value (at least in the UK) that is calculated using an average IV...

You'd need to check with the exchange as to what their corporate actions policy was, but it's normally cash settled at the option fair value following the offer going unconditional. They would normally take an average IV to determine the option fair value. But as I said, check directly with the...

The Options edge by Gallacher did a detailed study of IV / HV look-back in many markets - financial / commodity and others if I remember rightly. His conclusion was that there is no inherent advantage to selling rather than buying. However, I'm sure there was a piece arguing the statistical...