Vol Traders

[MajorUrsa]

Quote from 4_Q:
The credit received is critical. Simply price this thing at 5 or 25 on the shares. Nobody is going to give you free gamma when vols are trading at 300.

I never stated the vols were trading even.

No, I thought you didn't, just checking.

I havent looked at the actual prices, but in general, and in theory, the credit received is is not relevant for the bet. Of course the more the better, but as always, you bet that you have to pay less to close later.
Essential is, imo, that the bloated IV and an expected move after which IV collapses, will both profit the short calendar. The risk you take is that the IV rises further and nothing happens before the front month expires.

I'm probably less experienced in calendars than you are, and maybe I don't understand your answers correctly. But if I do not understand them, not many others will.

Ursa..

 

[4_Q]

The volatility expressed in $prem assumes > a double from here, or null price by April expiration. The corresponding gamma expressed by this premium is similarly expensive. High $vegas = high $gammas.

I meant to imply the debit/credit on this issue is indicative of the notional risk, due to binary, all-or-nothing nature of the outcome. In such a case, vols are meaningless, unless they're cheap.

The credit received is material in this case. It's a binary event in the case of AGIX. There is virtually no fundamental outcome which makes the gamma purchased a worthwile bet. They're simply too expensive, and for good reason. This stock is either a double[or more] from here, or bankrupt.

Consider the inverse, a $.50 debit long calendar on AGIX shares. The $.50 in defined-risk looks attractive at 1/10 the cost of the front month [APR] option. In reality it's a bet on a neutral outcome, which is the only predictably poor wager.

The only reasonable trade from here is long APR atm straddles. Long volatility [IV] in which the volty [IV] is meaningless. It's a pure gamma play as a function of the huge implied distribution. So much for selling vegas.

 

[MajorUrsa]

Quote from 4_Q:
The volatility expressed in $prem assumes > a double from here, or null price by April expiration. The corresponding gamma expressed by this premium is similarly expensive. High $vegas = high $gammas.

Ok, I understand you now. Because of the extremely binary outcome of the bet volatilty is meaningless as a statistical derivate. The gamble ppl buy or sell is based on extreme future values of the stock and hence there is hardly difference between the front- and the next month.

Thanks for explaining, that was worthwile. I suppose there are less extreme events that still are tending towards this discontinuus nature. A good point to not trade all 'high expectations before big sweep' events the same.

Ursa..

 

[spindr0]

Monday January 8, 7:30 PM EST

AtheroGenics today reiterated its guidance that the ARISE top line results will be available early in 2007. The Company further refined its guidance to indicate that the results will likely be available no sooner than late in the first quarter. At this point in time, the ARISE data base remains blinded and the Company continues to work towards its goal of presenting the results at the American College of Cardiology Scientific Sessions in March 2007.

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The above may be why the Mar and Apr options are pricing so high.