Volatility trading adjustments

D

diseasex

Hi got a question that bothers me.
Got stock that has current IV of 63% . I project it will go down to around 30% but over period of few months
I've got delta neutral position Jan 19'18 Short Strangle.
Now because I know it will be 60% for time being , do I adjust for 60% and monitor volatility or do I adjust for 30% now. (every week)
 
Do you have a handle on why it is at 60 in the first place? Did you look at previous years IV and plotted out its seasonaility? Is is a biotech or drug company waiting for a clinical trial result? heading into earnings? You have to have a handle on its unique fundamentals first before.
 
Yes the reason for high volatility is their IPO. Stocks from the sector dropped from similar levels to 30% within 6 months
 
ughh.. be careful... i've not done studies on correlation of IV within sectors but intuitively, a stocks movement hence its HV could "decouple" from others within sector. For instance, 2 stocks in the same sector might have different price action bec 1 stock has a massive float vs the other. In this scenario, one could have 20 HV and the other 45 hv simply due to float. I am deferring to other experts on this issue..
 
HV is a reflection of a stock's price movement.. so take a stock that is priced at $50 and stock priced at $100 for whatever reason- valuation, float,etc and they both have $3 ATR, first one will have a higher HV than 2nd.. as you can see from this simple example, the HV have nothing to do w sector... I could be wrong . but seems like straightforward HV 101.
 
diseasex said:
The company is Snapchat. And I was comparing it to FB
More...
Interesting. I ended up long the stocks instead of options because of the very high IV. I like your assessments, so I should do covered calls on my SNAP holding?

Thanks.
 
Definitely wouldn't go bullish on snap in medium term . Fb is stealing their business and plenty bad news on this like inexperienced millennials holding this stock. Put seems like a good idea when positioned properly . Just a thought
 
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