Poll: Best Options trade

[xtrhvydty]

Assumptions:

1. Options are at all time low IV
2. We assume the HV and IV WILL explode over the next 2 weeks, but we don't know exactly when. We have no directional bias.
3. The stock is holding steady at the ATM option
4. Expiration is in 3 weeks for the near term option.

Which of these trades has the best Reward/Risk ratio, from your experience, over the long run? Please explain.

Many Thx

 

[xtrhvydty]

pls note this is meant to inquire "from experience", and not just what the Option pricing models predict. I'm more interested in the theory vs. pricing model viewpoint.
thx again

 

[riskarb]

Easy

 

[Maverick74]

Quote from xtrhvydty:

pls note this is meant to inquire "from experience", and not just what the Option pricing models predict. I'm more interested in the theory vs. pricing model viewpoint.
thx again

Your question is not valid.

 

[lenwhistler]

Quote from xtrhvydty:

2. We assume the HV and IV WILL explode over the next 2 weeks, but we don't know exactly when. We have no directional bias.

But how do you know that the IV WILL explode over the next 2 weeks? For IV to explode unexpected news has to come out and blindside everyone. The only way you could know this is from inside information.

 

[cnms2]

To profit from options you have to correctly forecast the underlying's price and options' implied volatility over the life of your position.

Once you decide on your forecast, plug the positions you're considering in an options analyzer, or use an options calculator and draw their pay-off graphs. Compare those graphs and pick the one that has the reward / risk that suits you best.

There's no a priori better expectancy trade, and no amount of "experience" will change it.

Quote from xtrhvydty:

Assumptions:

1. Options are at all time low IV
2. We assume the HV and IV WILL explode over the next 2 weeks, but we don't know exactly when. We have no directional bias.
3. The stock is holding steady at the ATM option
4. Expiration is in 3 weeks for the near term option.

Which of these trades has the best Reward/Risk ratio, from your experience, over the long run? Please explain.

Many Thx

 

[MTE]

Quote from lenwhistler:

But how do you know that the IV WILL explode over the next 2 weeks? For IV to explode unexpected news has to come out and blindside everyone. The only way you could know this is from inside information.

Good point. Unless something unexpected happens you cannot have both an IV and HV exploding. If it is expected, like earnings, then only the HV will increase, while the IV will get crushed.

 

[IV_Trader]

Reverse Calendar into event (one day)

 

[mysticalps]

Quote from xtrhvydty:

Assumptions:

1. Options are at all time low IV
2. We assume the HV and IV WILL explode over the next 2 weeks, but we don't know exactly when. We have no directional bias.
3. The stock is holding steady at the ATM option
4. Expiration is in 3 weeks for the near term option.

Which of these trades has the best Reward/Risk ratio, from your experience, over the long run? Please explain.

Many Thx

Given the assumptions, would anyone consider trading the short near term straddle against the long third-month straddle?

 

[riskarb]

Quote from mysticalps:

Given the assumptions, would anyone consider trading the short near term straddle against the long third-month straddle?

Depending on the relative increse in IV and SV. If IV > SV, a back month may outperform. If SV > IV, a near-term position would be indicated, but it's always a gamble.

A near-term strangle may outperform all if implied-vols are trading at very low levels -- the gamma[dgamma curvature] become very leveraged.