Any one trade can win and any one trade can lose. No 'best' trade, statistically. On event trades you have to be right on vol, direction, magnitude, etc. Just pick your poison. That doesn't mean you can't be profitable, it means there isn't an obvious trade that is optimal under all circumstances.
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Reverse Iron Condors
- Thread starter jkgraham
- Start date
Quote from newwurldmn:
Because the probabilities over the long run matter. Remember you are taking the view that a big move will happen. There's no point buying volatility if you don't think the makret is mispricing the probability of a big move is there. Otherwise you are paying too much because options price in that Convexity (There's that big word again).
Say earnings are pricing 5%. You think the stock is going to move 6%. That is not a compelling trade. If you think the stock is going to move 10%, it is very compelling. If you think the stock will move 6% and has a possibility of moving 10%, then it's compelling enough to do the trade.
The market won't give you much for selling the 10% move risk. The market won't give you much for the 7% move risk. So why bother?
Payouts in options are not like stocks. They are lumpy. Lots of small gains and a few big ones. Which side you are on during the many small gains and the few bigs ones culminate in your total pnl.
Is Convexity the same thing as Gamma?
Hey JK, thats right there is no such thing as an anaconda options trade but maybe ill invent it.
Just as I thought. Convexity has nothing to do with Options, it is a term used for Bonds.
http://www.investopedia.com/terms/c/convexity.asp#axzz1oY4C4XE0
The proper term for Options is Bell Curve.
http://www.investopedia.com/terms/c/convexity.asp#axzz1oY4C4XE0
The proper term for Options is Bell Curve.
If you model some of these EA plays, you may find that you need to write a new ending to your story. Moving one strike is nowhere the money maker that you think it is.Quote from jkgraham:
On the RIC, if the underlying moves up or down more than $5(or one strike) at closing it will make money, end of story. At that point, IV contraction doesn't matter, Convexity doesn't matter.
That about sums it all up. What you bring to the table determines what you take away.Quote from sonoma:
Any one trade can win and any one trade can lose. No 'best' trade, statistically. On event trades you have to be right on vol, direction, magnitude, etc. Just pick your poison. That doesn't mean you can't be profitable, it means there isn't an obvious trade that is optimal under all circumstances.
Quote from ForexForex:
Just as I thought. Convexity has nothing to do with Options, it is a term used for Bonds.
http://www.investopedia.com/terms/c/convexity.asp#axzz1oY4C4XE0
The proper term for Options is Bell Curve.
ugh!:eek: