Option Pit

[destriero]

So Kim Klaiman thinks that a 1200 straddle in GOOGL is non-directional, because all straddles are! Further, "your chances to make money if the stock drops are smaller than if you started with delta neutral position like 1225."

Well no. The chances are nil to earn on the 1200 straddle at 1200 on shares unless the vol rallies 8 handles. Right, from the 20-line to 28. 45-deltas are slightly bullish? Your chances are smaller?!

Please let me know if you ever need me to make a market for you. I will drop everything.

 

[Kim Klaiman]

So Kim Klaiman thinks that a 1200 straddle in GOOGL is non-directional, because all straddles are! Further, "your chances to make money if the stock drops are smaller than if you started with delta neutral position like 1225."

Well no. The chances are nil to earn on the 1200 straddle at 1200 on shares unless the vol rallies 8 handles. Right, from the 20-line to 28. 45-deltas are slightly bullish? Your chances are smaller?!

Please let me know if you ever need me to make a market for you. I will drop everything.

Your original question was not if the stock drops to 1200. It was if the stock drops 1 sigma. Two different things. 1 sigma drop could be much lower than 1200, in which case combined with IV increase the trade could still make money. But as I mentioned, obviously 1225 would make much more. And obviously if the stock dropped to exactly 1200, you would be losing money because the straddle value is the smallest at the strike.

Which was exactly my original point regarding starting delta neutral vs. Starting directional. Which you just proved no matter how much you misquote me.

I rest my case.

 

[destriero]

Your original question was not if the stock drops to 1200. It was if the stock drops 1 sigma. Two different things. 1 sigma drop could be much lower than 1200, in which case combined with IV increase the trade could still make money. But as I mentioned, obviously 1225 would make much more. And obviously if the stock dropped to exactly 1200, you would be losing money because the straddle value is the smallest at the strike.

Which was exactly my original point regarding starting delta neutral vs. Starting directional. Which you just proved no matter how much you misquote me.

I rest my case.

The 1sigma strike is 1195. And yeah, the long 1200 straddle still loses $700 tomorrow at 1195 on shares.

 

[Kim Klaiman]

The 1sigma strike is 1195. And yeah, the long 1200 straddle still loses $6 tomorrow.

1 sigma is not a static strike. It could be 1195 tomorrow, or much lower next week. 1 sigma depends on the timeframe. 30 points move in one day could be 1 sigma, but 30 points move in 7 days is much less than 1 sigma.

This is exactly why I said that the chances to make money are smaller not nil - because 1 sigma down move in few days can take the stock much lower than 1200.

But this was not the subject of the original discussion.

 

[destriero]

1 sigma is not a static strike. It could be 1195 tomorrow, or much lower next week. 1 sigma depends on the timeframe. 30 points move in one day could be 1 sigma, but 30 points move in 7 days is much less than 1 sigma.

This is exactly why I said that the chances to make money are smaller not nil - because 1 sigma down move in few days can take the stock much lower than 1200.

But this was not the subject of the original discussion.

1S through Aug24--the LTD for the 1200 straddle in question. It's always been the Aug24 1200 straddle. Well, since it's the Aug24 1200 straddle we're likely to be referring to the Aug16 to Aug24 time-frame.

One sigma is roughly 1195, actually a bit higher, but we're talking listed here, not OTC. Use 8-day stat or Aug24 strike vol, your choice.

lol. Are their cameras here? Is this shit really going down?

 

[Kim Klaiman]

1S through Aug24--the LTD for the 1200 straddle in question. It's always been the Aug24 1200 straddle. Well, since it's the Aug24 1200 straddle we're likely to be referring to the Aug16 to Aug24 time-frame.

One sigma is roughly 1195, actually a bit higher, but we're talking listed here, not OTC. Use 8-day stat or Aug24 strike vol, your choice.

lol. Are their cameras here? Is this shit really going down?

Well, not really.

Here is the chart of ATM 1232.5 straddle placed on the close yesterday:

1 sigma on Thursday (T+1) is around 1218. But 1 sigma at expiration (T+9) is around 1189:

So yes, in case you din't know, 1 sigma move will lend at certain strike if it happens in 1 days or a different strike if it takes 9 days.

So 1 sigma move happening by next week would take the stock lower than 1200. And your original question was "can you make money if the shares drop 1sigma?" not "can you make money if the shares drop to 1200?" Fortunately the question is still there for everyone to see.

If you don't know this basic stuff, then we really are on completely different levels. I really tried to be patient with you, but as the old saying goes:

'If you are not willing to learn, no one can help you. If you are determined to learn, no one can stop you.'

The less advanced traders who don't have enough knowledge to decide who is right - just look at the screenshot from ONE software. It tells the whole story.

 

[destriero]

1SD on the Aug24 is roughly 1195 to LTD. One day’s 1SD? Not remotely the point. So unless you want to make a point on a rally in vol... the thing loses nearly $800 at neutrality tomorrow. Daily 1SD is like $11.

The move to neutrality will result in a loss. Any move towards neutrality will result in a loss.

Will the long 1200 straddle earn on a $11 drop in shares tomorrow? No.

Is $30 > $11? Yes.

The 1200 straddle is long 48 deltas as I type this.

“Straddles are non-directional” Kim Klaiman

 

[sle]

'If you are not willing to learn, no one can help you. If you are determined to learn, no one can stop you.'

Very inspirational. Still, not willing or determined, a 1-week straddle struck 2% OTM on a 20 vol stock would not be delta neutral.

 

[Kim Klaiman]

“Straddles are non-directional” Kim Klaiman

ATM straddles are non directional. OTM straddles are directional, and will benefit from the move in the right direction, and be hurt if the stock moves toward the strike.

This was my whole point. Which you just confirmed.

 

[Kim Klaiman]

Very inspirational. Still, not willing or determined, a 1-week straddle struck 2% OTM on a 20 vol stock would not be delta neutral.

Absolutely. Once again, this was my whole point from the very beginning.