If I think a stock is going from $25 to $35 overnight...
- Thread starter Crude Man
- Start date
How about long DITM call with delta = 1? Or theta is not an issue here since OP is going to hold it overnight and OTM will give it more "pop"?
No to the DITM calls. If you expect a 40% increase you buy OTM calls.
Dollar wise, Buy the stock, Sell on price increase.
Percent wise, Buy $35 call, Sell on IV increase.
Reality;
It's already priced in, unless you have inside knowledge.
The market will take your money and not care.
Don't look for the big killing, it could be you.
Carl
__________________
Enjoy life, it's limited.
You only get as much as you take.
Percent wise, Buy $35 call, Sell on IV increase.
Reality;
It's already priced in, unless you have inside knowledge.
The market will take your money and not care.
Don't look for the big killing, it could be you.
Carl
__________________
Enjoy life, it's limited.
You only get as much as you take.
High delta ITM calls are a good way to make money if you have the direction right and you get several pts of move. But in the narrow confines of the OP's criteria, they're not going to be the biggest winner.
OTM provides leverage. Since it's going to be a binary event, most anything in the near month (except those ATM post move) is going to go to parity so that means that you want the cheapest OTM that goes the furthest ITM otherwise post release, they become worthless. And then there's that IV crash thong to deal with
.atticus's answer of buying the midpoint call will be the closest to the best result for taking a shot in the dark. For the more enlightened bet, you model the outcome of each call, taking into account current IV, projected post announcement IV, price target and time (which is irrelevant since OP said overnight). At best, the greatest gain might come from an adjacent strike but it won't be by much. Most should be very grateful to get either of these for their day at the track because IMHO, bio plays are pretty much hit or miss.
And you don't think that the ones selling the options don't know this? I am not trying to be cynical. BUT...
If you are trying to buy a straddle before SEC approval the option makers will already have rammed up the vol to compensate them for the potential rip or flop.
Hence you trying to make money is pretty pointless since the options will have that priced in.
You need to get the surprise element on your side.
You should have never expected a simple answer in the first place. It always depends and options are complex instruments. This offers both opportunities and challenges, but it def doesn't offer free easy money.