Low IV but is it a bargain?

kapw7 · Aug 31, 2012

This is only a newb question so apologies if the answer is obvious:
I'm playing with the option scanner and this is an example that stands out.
DTG according to yesterday's closing prices, ATM straddle, JAN 13, trades at 0.65 ask. Hist vol is 37% (IB value) but this is after a recent spike in the stock price, so daily HV30 is still still "plateuing". But still isn't that really cheap i.e. IV is <5% for JAN 13 expiry? Is there any trap there?
From a quick scan of the news the recent price spike was due to acquisition however it has not been approved yet but couldn't see any other negative news (lawsuits etc)

newwurldmn · Aug 31, 2012

Quote from kapw7:

This is only a newb question so apologies if the answer is obvious:
I'm playing with the option scanner and this is an example that stands out.
DTG according to yesterday's closing prices, ATM straddle, JAN 13, trades at 0.65 ask. Hist vol is 37% (IB value) but this is after a recent spike in the stock price, so daily HV30 is still still "plateuing". But still isn't that really cheap i.e. IV is <5% for JAN 13 expiry? Is there any trap there?
From a quick scan of the news the recent price spike was due to acquisition however it has not been approved yet but couldn't see any other negative news (lawsuits etc)

The acquisition = zero vol when it closes. The world believes this will close as it's been going on for two years. If you feel differently and you are right, you can make A LOT of money.

kapw7 · Aug 31, 2012

Quote from newwurldmn:

The acquisition = zero vol when it closes. The world believes this will close as it's been going on for two years. If you feel differently and you are right, you can make A LOT of money.

Thanks for that. Better buy a real lottery ticket instead...