Destriero's single-name vola journal (riskarb; atticus; et al)
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One key point and dest can correct me if I am misstating this but it is a vol play on GOOG. The strikes are chosen to minimize delta/gamma risk if a big sell off occurs. If stock dumps and vols don't collapse as much as he hopes, then the FLY will earn on the deltas as a back up. The real goal is for stock to go sideways or lower on vol crush. If stock jumps higher then vol dump will still maintain some value over delta loss to escape with minimal damage....
Notice how on your risk chart, the loss on vol drop minimizes the loss if stock jumps over 1220...
Notice how on your risk chart, the loss on vol drop minimizes the loss if stock jumps over 1220...
IVs seem relatively high at 40% range. That is why Dest is saying he is expecting IVs below 40 after report. I cannot pull up the correct chart at the moment but the one I saw showed IVs at a relatively high level since last earnings report.
Thanks for the patience guys.
What puzzled me most was the simulation of a combination of low price & higher vol.
Although the price goes in the direction of the fly, there's an immediate hit.
However that changes quickly. I didn't notice it.
If the vol increase was today:
If it was on 23th
And on 25th
What puzzled me most was the simulation of a combination of low price & higher vol.
Although the price goes in the direction of the fly, there's an immediate hit.
However that changes quickly. I didn't notice it.
If the vol increase was today:
If it was on 23th
And on 25th
Sum Zero,
The relatively high vols are due to the uncertainty of the earnings report coming up. Even if news is bad and stock drops, the immediate uncertainty is reduced somewhat. Also, with todays information availability, the news will never be major shocking, just maybe not as good as expected. So it is with almost 100% certainty that once earnings are reported, the vols will come down by some factor. It is the nature of how IV works on stocks around an event. So the odds of GOOG dropping to 1150 and vols surging are extremely low. Also even if stock drops and vols increase the deltas of the FLY will still produce a profit. Your chart is only isolating vols, at current pricing today, if you can open an option pricing model and enter correct today vol and price and then keep vol the same and chage price to 1150 and price the same FLY you will see what I am saying.
So ToS risk profile is one greek at a time. FLYS are sensitive to vega and delta/gamma at same time, more so based on the strikes Dest chose.
The relatively high vols are due to the uncertainty of the earnings report coming up. Even if news is bad and stock drops, the immediate uncertainty is reduced somewhat. Also, with todays information availability, the news will never be major shocking, just maybe not as good as expected. So it is with almost 100% certainty that once earnings are reported, the vols will come down by some factor. It is the nature of how IV works on stocks around an event. So the odds of GOOG dropping to 1150 and vols surging are extremely low. Also even if stock drops and vols increase the deltas of the FLY will still produce a profit. Your chart is only isolating vols, at current pricing today, if you can open an option pricing model and enter correct today vol and price and then keep vol the same and chage price to 1150 and price the same FLY you will see what I am saying.
So ToS risk profile is one greek at a time. FLYS are sensitive to vega and delta/gamma at same time, more so based on the strikes Dest chose.
The position is slightly positive on deltas though. The play is neutral to slightly positive and short vol.
I assume with the 1 3 2 set up of the FLY the move higher will squeeze out premium of the short 3 over the long 2 so there is upside room for profit.
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