Hi all,
Using high/low volatility scanner I found out that UAL has extremely low implied volatility (IV), as can be seen on the chart (box and whisker are for the year of data).
I am assuming that IV will go up soon, and was hoping to exploit that by buying options while they are cheap (and if IV is low it means they are cheap) and selling them when IV goes up and they are more expensive. Now comes the question - what options should I buy?
Since vega has the biggest impact on ATM options with shorter expiration, I was thinking about buying ATM option with expiration in about 2 or 3 months - I am hoping it will be enough time for IV to go up before theta eats my price.
Finally, I have to chose direction of underlying (up (call), down (put), or both (straddle) - I did not want to go into more complicated strategies).
While stock has been growing in longer term, recently it was oscillating - I was thinking about buying straddle and betting it will just change in near future, or going with longer time trend of growth and buying call.
I am still learning so I did a paper money trade with this (I chose call for simplicity) -> I bought 62.5 call @ $1.88, exp at Dec 18. Not exactly ATM, but pretty close (spot price was $60.3).
This is my first post and I am still learning about options, so please forgive me if I made some basic mistakes - I would like to hear your comments on my reasoning, so that I will be smarter the next time I find a similar trade!
Using high/low volatility scanner I found out that UAL has extremely low implied volatility (IV), as can be seen on the chart (box and whisker are for the year of data).
I am assuming that IV will go up soon, and was hoping to exploit that by buying options while they are cheap (and if IV is low it means they are cheap) and selling them when IV goes up and they are more expensive. Now comes the question - what options should I buy?
Since vega has the biggest impact on ATM options with shorter expiration, I was thinking about buying ATM option with expiration in about 2 or 3 months - I am hoping it will be enough time for IV to go up before theta eats my price.
Finally, I have to chose direction of underlying (up (call), down (put), or both (straddle) - I did not want to go into more complicated strategies).
While stock has been growing in longer term, recently it was oscillating - I was thinking about buying straddle and betting it will just change in near future, or going with longer time trend of growth and buying call.
I am still learning so I did a paper money trade with this (I chose call for simplicity) -> I bought 62.5 call @ $1.88, exp at Dec 18. Not exactly ATM, but pretty close (spot price was $60.3).
This is my first post and I am still learning about options, so please forgive me if I made some basic mistakes - I would like to hear your comments on my reasoning, so that I will be smarter the next time I find a similar trade!
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. I do not feel like I have knowledge to make my own judgement yet, but I will keep it in mind.
