Riskarb's combo to fly conversion journal

Put on a PALM 40 straddle earlier when a notice came out that IV was at 60%. I figured that once the results from the RIMM hearing came back it would go back to normal. I was right about that. IV at close=48% with only a small move in the underlying.

The problem was that I wasn't gutsy enough to put it on in my real account. I figured that if the results of the hearing were in RIMM's favor then PALM wouldn't move much. This would make the combo to fly a good play. On the other hand I thought they would get a pretty large boost if the results were against RIMM. This would result in broken resistance and a really good bullish run. In the end I decided just to paper trade it.:( But hey, my paper account is going to make out pretty good. ;)
 
Quote from riskarb:

Wow, 1200bp in a matter of hours, nice play. Don't forget to let us know asap next time; but trade it first, of course. :)
More...

Of course!:D

When screening for these conversion plays I have a tendency to find companies with high IV due to earnings expectations. I often ignore good situations like that one. It seems that sympathetically high IV might work out better than earnings related plays.

In my experience, sympathetic moves aren't as dramatic but still allow for enough IV inflation/deflation. This would technically make the position profitable but less risky in regards to the initial short straddle.

Question is, is there an easier way to screen for potential "sympathetic" setups?
 
Shorting a year long straddle? How much theta or IV crush can you expect the first few months though? Or your intent is to trade off of it as soon as possible?

My screens are coming up empty, nothing good to trade on for combo to FLYs.....
 
I am looking for slight delta gains on a hit of 350 and vols of 37%.. Should equate to 12 points on the straddle within a few weeks, provided we see both conditions-met.
 
Ok so you put on the straddle with the calls in the money expecting a pull back to $350 which should shrink the straddle momentarily. DO you think a sudden drop might kick up the IV or a slow bleed will push IV down as we enter the in-between earnings trough?
 
You must log in or register to reply here.
Back
Top