Very first post, so please go easy on me.
Suppose you are fairly certain of an intraday vola drop of, let's say, 20 pts. What's the best way (defined as maximum % return while minimixing % risk) to capitalize on this expected fall in IV? The goal would be to isolate volatility and not have to make much of a directional prediction (who needs that headache, right?)
Flies would normally be the go-to, right? But the goal is to close the position the same day it's opened (intraday vol drop), and the ATM options seem not to drop much more than the wings (given it's only held a few hours), resulting in slight profit, if any, at least from my testing. Correct me if I'm wrong here, I won't take offense.
A short straddle would be the most obvious and most direct to me, but a sharp move in either direction and you're toast (plus high margin requirements).
You can write a covered call, but you lose on the stock if the price falls.
You can write a delta-neutral call, offset by long stock (and the need to re-hedge if the stock moves too much)
The last two methods require more capital.
None of those methods seem great. How would you play this? I realize I am an amateur compared to many of you, but I have a basic knowledge of all the greeks and what influences them and would like to start a constructive discussion. Apologies if a similar topic has been started in the past, but it doesn't hurt to have another discussion IMO.
Thanks for your time
Suppose you are fairly certain of an intraday vola drop of, let's say, 20 pts. What's the best way (defined as maximum % return while minimixing % risk) to capitalize on this expected fall in IV? The goal would be to isolate volatility and not have to make much of a directional prediction (who needs that headache, right?)
Flies would normally be the go-to, right? But the goal is to close the position the same day it's opened (intraday vol drop), and the ATM options seem not to drop much more than the wings (given it's only held a few hours), resulting in slight profit, if any, at least from my testing. Correct me if I'm wrong here, I won't take offense.
A short straddle would be the most obvious and most direct to me, but a sharp move in either direction and you're toast (plus high margin requirements).
You can write a covered call, but you lose on the stock if the price falls.
You can write a delta-neutral call, offset by long stock (and the need to re-hedge if the stock moves too much)
The last two methods require more capital.
None of those methods seem great. How would you play this? I realize I am an amateur compared to many of you, but I have a basic knowledge of all the greeks and what influences them and would like to start a constructive discussion. Apologies if a similar topic has been started in the past, but it doesn't hurt to have another discussion IMO.
Thanks for your time
