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On a pragmatic level it's because fewer people look at volatility as an asset. With a few thousand optionable stocks in the US alone there are opportunities that evade the net of larger players or market makers. On a deeper philosophical note, it is pretty obvious that trading volatility (unlike...

Whatever you say, dude! Are we on for the bet or are you chickening out? PS. I recon the odds are 5:1 in my favor, roughly :I

I don't see how your prediction has anything to do with a straddle. You said (and I quote): "one OR the other at expiry- $211.61 OR $208.39 - plus/minus a dime". Translating it into a payoff would give us two double digital options: OptionGuru Bet = $N * if(SPY > 211.51 and SPY < 211.71) + $N *...

Right, so as I said, I am willing to bet that it's not gonna be within 10 cents to EITHER of the two numbers - you giving two 20c-wide expiration ranges ("give of take a dime"), I am willing to take the other side :) I'll bet sushi dinner in Manhattan, choice of the winner?

Wait, what? You giving us two 10bp ranges for this Friday close? that's brave... Can I make a bet that it will NOT end in your ranges (neither between 211.71 and 211.51 nor between 208.49 and 208.29)?

Are you asking how specifically one would look at an earnings/event play or are you asking an philosophical question "why should one ever trade volatility using options?"

Root-time sensetivity follows from the expected change in ambient volatility, which is obviously not true if you are expecting a single day event. Instead, think on how to combine ambient vol and event vol into a single vol number for a given maturity which would give you fair vol (*). The only...

Well, nothing prevents your from holding extra delta against it. That's what market makers do - you don't just blindly use BS delta but rather decide what delta to hedge on based on the skew and realized vol beta vs your vega and volga. While very theoretical-sounding greeks, they can have a...

The expected behavior of the term structure is that IV moves proportional to square root of time. So if you structure rtVega neutral calendar, (e.g. equal notional ATM options) you will, in theory, be hedged against normal IV moves. Your primary exposures are gamma and non-RT moves in the term...

Did I miss those in my years out? Oh, come on - in this context, the same strike/tenor and ATMFish strike, it's a totally ok to think it terms of premium paid. In fact, the moment you you live in a unit-tenor world, extrinsic premium is the best proxy to theta, which in turn is the best proxy...

You're in a wrong business for building a fortune. The only sure way to make a small fortune as a trader is to start with a big fortune :)

Wonderbra! Put call parity takes care of it - you pay the same premium so you get the same costs and benefits. The only possible differences are idiosyncratic to your local institution - i.e. if your funding or borrow treatment is different from the rest of the market place. I, for example...

Both structures are flat delta and you end up paying same amount of premium... but somehow Bobby is doing better then Jimmy.

So how are the two different from risk perspective? Nobody seems to be able to tell me :)

Yes, that is definitely true. Risk-free money.

So you are saying that if Bobby buys 2 calls and shorts stock, while Jimmy bought a call and a put, Bobby is somehow better off?

Still don't see how 2 units of "synthetic" straddle is different from 1 unit of regular put+call straddle, since they would give you the same exposure. The only difference, as newwurldmn points out, is that shorting the stock has a difference treatment from margin and funding perspective.

Sorry, being thick here. Assuming equal amount of vega, how does synthetic straddle differs from a regular one from risk-management perspective?

-- gamma scalping is also known as hedging your delta :) it's coincidental that the structure (straddle) starts out delta-flat(ish), otherwise you'd be trading delta against it at the inception of the trade -- there is nothing "defensive" about delta-hedging - it's a way to transform your risk...

-- you are actually trading vol so if you are able to identify mispricings of vol, you can do very well -- obviously, vol is structurally rich so you would be almost always tempted to be a seller of straddles -- risk management and understanding of value would be as important for buying...