Earnings: IC vs Short Strangle

newwurldmn · Feb 25, 2012

Quote from sle:

You gotta give it to the guy, at least he got lucky on this one. The returns on the ATM straddle or a strangle were not as stellar as guessing the direction right.

On a different note, I think the company is great: "unmet needs in obesity, diabetes, obstructive sleep apnea and sexual health. " The motto should be "We Get You Laid!"

It's the golden company from Idocracy (which, if you haven't seen I recommend at least for it's premise).

He might have had a reasoning. The biotech guys I had spoken too didn't have a clear view on this one.

babutime · Feb 25, 2012

Quote from newwurldmn:

It's the golden company from Idocracy (which, if you haven't seen I recommend at least for it's premise).

He might have had a reasoning. The biotech guys I had spoken too didn't have a clear view on this one.

One can calculate the expected move- Taleb and Sinclair provide some formulas in his book but its basically similar to adding variances- nothing crazy.

But even that only gives an expected move of about $6.

O well if he made money on it, good for him.

atticus · Feb 25, 2012

Quote from babutime:

One can calculate the expected move- Taleb and Sinclair provide some formulas in his book but its basically similar to adding variances- nothing crazy.

But even that only gives an expected move of about $6.

O well if he made money on it, good for him.

0.4*vola*sqrt(T) for ATM. *2 for the combo. Or you could simply use the 0delta straddle premium. Conservative and more practical. You can also approximate easily.

babutime · Feb 25, 2012

Quote from atticus:

0.4*vola*sqrt(T) for ATM. *2 for the combo. Or you could simply use the 0delta straddle premium.

Ha! Id forgotten about that dirty way of calculating the price...

And exactly what a straddle effectively implies

So that's 4 pros here and counting...

atticus · Feb 25, 2012

Quote from babutime:

Ha! Id forgotten about that dirty way of calculating the price...

And exactly what a straddle effectively implies

So that's 4 pros here and counting...

That's conservative, as you won't likely be over 90D (upside). You can always what-if for the expected extrinsic (2*P in this case) and shave that off the straddle premium. A bit less dirty.

They got it wrong in VVUS' case, and they normally do in these biotechs under $15/share.

atticus · Feb 25, 2012

Quote from sle:

You gotta give it to the guy, at least he got lucky on this one. The returns on the ATM straddle or a strangle were not as stellar as guessing the direction right.

On a different note, I think the company is great: "unmet needs in obesity, diabetes, obstructive sleep apnea and sexual health. " The motto should be "We Get You Laid!"

The anti-turducken pill. Paula Deen should be working for VVUS.

newwurldmn · Feb 25, 2012

Quote from babutime:

Ha! Id forgotten about that dirty way of calculating the price...

And exactly what a straddle effectively implies

So that's 4 pros here and counting...

I always used the 2 maturity method.

newwurldmn · Feb 25, 2012

Quote from atticus:

That's conservative, as you won't likely be over 90D (upside). You can always what-if for the expected extrinsic (2*P in this case) and shave that off the straddle premium. A bit less dirty.

They got it wrong in VVUS' case, and they normally do in these biotechs under $15/share.

Sometimes they are spot on. MVDN in 2010 was priced for a $35 move. It moved like $34.5. They got the maturity wrong. HGSI they priced high going into the FDA approval. HGSI into a lot of the data was priced correctly. Even VVUS, if i remember, was priced correctly going into the data. I forgot how the first FDA approval was priced. I don't think anyone expected sucha resounding recommendation. It was a tail event, kind of like ITMN in 2010 when the FDA issued a complete response letter for a third trial. The tail event that made the straddles look cheap and wasn't really expected by anyone.

newwurldmn · Feb 25, 2012

Quote from babutime:

One can calculate the expected move- Taleb and Sinclair provide some formulas in his book but its basically similar to adding variances- nothing crazy.

But even that only gives an expected move of about $6.

O well if he made money on it, good for him.

Yeah. Determing this type of information from options markets is the easy part. Figuring out if the markets are wrong is much harder. Personally I think this name is a short here, though I'm not short yet (going on holiday for two weeks starting on Thursday).

babutime · Feb 26, 2012

Quote from newwurldmn:

Sometimes they are spot on. MVDN in 2010 was priced for a $35 move. It moved like $34.5. They got the maturity wrong. HGSI they priced high going into the FDA approval.

Hey, a recent example would also be AAPl too. The recent earnings had an expected move of $35 and actually moved around $34. My ICs on paper trade made a handsome profit.

I wonder if PCLN this monday is priced in correctly. I've never tried this strategy, but would a Double Diagonal make sense in this case? Sell front month vol and buy back month vol?