Best option strategy ?

series 7 · Aug 26, 2006

I speculate that within the next 60 days that an 80.00 stock will
go up 5.00 before it goes down 5.00

What would be the best option strategy to profit off this if I am correct ?

Thanks for all replies

MajorUrsa · Aug 26, 2006

Quote from series 7:
I speculate that within the next 60 days that an 80.00 stock will
go up 5.00 before it goes down 5.00

How sure are you?
If you're 100% sure buy far-month calls now and sell them on 85, then buy puts.
Or sell near-month puts and buyback at 85 then sell near-month calls.
If less sure, hedge them by buying cheaper puts/calls as well (backspreads)

Ursa..

IV_Trader · Aug 26, 2006

Quote from MajorUrsa:

If you're 100% sure buy far-month calls now and sell them on 85, then buy puts.

if stock has vols > 40 , he might lose on calls

rallymode · Aug 26, 2006

Quote from IV_Trader:

if stock has vols > 40 , he might lose on calls

Where do you get the 40 from? Why not 30 or maybe 50?

IV_Trader · Aug 26, 2006

Quote from rallymode:

Where do you get the 40 from? Why not 30 or maybe 50?

segv · Aug 26, 2006

Quote from MajorUrsa:

How sure are you?
If you're 100% sure buy far-month calls now and sell them on 85, then buy puts.
Or sell near-month puts and buyback at 85 then sell near-month calls.
If less sure, hedge them by buying cheaper puts/calls as well (backspreads)

Ursa..

Why not just sell puts naked now, buy them back after the move, then sell calls?

-segv

cohenmichaela · Aug 26, 2006

I agree buy to OTM calls but why use back-month? Back-month has a flatter gamma curvature and will accumulate less deltas on those calls. They're also more sensitive to vega as IV_Trader mentioned.

If your positive on price movement (within a certain time period) then I would choose the quickest expiring calls within that time period. Then ride the gamme curve up. Like a lottery ticket although you seem to know the winning numbers.

Quote from MajorUrsa:

How sure are you?
If you're 100% sure buy far-month calls now and sell them on 85, then buy puts.
Or sell near-month puts and buyback at 85 then sell near-month calls.
If less sure, hedge them by buying cheaper puts/calls as well (backspreads)

Ursa..

momoneythansens · Aug 26, 2006

Quote from rallymode:

Where do you get the 40 from? Why not 30 or maybe 50?

IV has a team of hobbits in his dungeon amassing a large IV data warehouse from which a further team of Santa's elves (during their off-peak period) work on mining the data for correlations and relationships hitherto known only to Bigfoot and his mom.

IV_Trader · Aug 26, 2006

Quote from momoneythansens:

IV has a team of hobbits in his dungeon amassing a large IV data warehouse from which a further team of Santa's elves (during their off-peak period) work on mining the data for correlations and relationships hitherto known only to Bigfoot and his mom.

ACLU forced me to fire the elves , I got Wonka's ex crew working on the data entering now.

OddTrader · Aug 26, 2006

Quote from series 7:

I speculate that within the next 60 days that an 80.00 stock will
go up 5.00 before it goes down 5.00

What would be the best option strategy to profit off this if I am correct ?

Thanks for all replies

Assuming I can project the timing of 85 and 75, I myself would try to find a potential solution/ strategy (and adjustments) very much dynamically depending on the scenario at "Now":
A. Whether during/ ending an strong up/ down trend (disregarding sideways for simplification) ;
B. Whether currently holding any open position and what (kind of) positions.

I would trade differently if I can't time the turns of 85/ 75 (perhaps very close to the end of 60 days).