Straddles + Real World Examples

[BellWeather]

These four stocks have come up for a custom scan for increased volatility:

PM
ALL
DIS
TXN


Since I don't know the direction, would like to implement an option straddlle.

Do most people try to sell one leg after the move and ride for a directional trade?
My concern is that a quick reversal traps you into holding the wrong leg.

All things considered, do you try buy a minimum of X days/months out?

 

[dagnyt]

Quote from BellWeather:

These four stocks have come up for a custom scan for increased volatility:

PM
ALL
DIS
TXN


Since I don't know the direction, would like to implement an option straddlle.

Do most people try to sell one leg after the move and ride for a directional trade?
My concern is that a quick reversal traps you into holding the wrong leg.

All things considered, do you try buy a minimum of X days/months out?

You are not asking the right questions, IMO.

Don't you want to know whether the options are reasonably priced or if they are trading near an all-time high implied volatility?

Do you have any idea how much more volatile you anticipate the stocks will be? If that realized volatility turns out to be much less than the IV of the options, you will lose money.

Do you have a good guess as to when that increased volatility will occur?

Have you any experience trading straddles, or are you going to do 'what most people do' - and base that information on the random reply of people about whom you know little or nothing?

I wish you well.

Mark

 

[spindr0]

Legging in an out of positions requires some skill and some discipline. The skill part involves recognizing the direction and getting on it and the discipline part involves completing the intended executions if the position quickly if the underlying reverses.

How much time to buy is dependent on how good your timing is and what you're attempting to achieve. If you're finding short term moves, the nearest expiration will give you more bang for the buck percentagewise. If you don't find it, the near month will go to zero awfully darn fast and you won't be a happy camper.