So you are saying the reduced gamma exposure is worth the lower Theta and increased risk of the underlying moving out of target range assuming you are not planning on modifying the trade later on? I am not trying to be confrontational. I do respect your experience and knowledge and maybe I can learn something here too.
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what type for strategy is best to use to profit on volatility?
- Thread starter jgold310
- Start date
So you are saying the reduced gamma exposure is worth the lower Theta and increased risk of the underlying moving out of target range assuming you are not planning on modifying the trade later on? I am not trying to be confrontational. I do respect your experience and knowledge and maybe I can learn something here too.
Quote from Maverickz:
So you are saying the reduced gamma exposure is worth the lower Theta and increased risk of the underlying moving out of target range assuming you are not planning on modifying the trade later on? I am not trying to be confrontational. I do respect your experience and knowledge and maybe I can learn something here too.
The point is to isolate vega, not to gain from theta. The assumption is that the trader is predicting a decline in implied volatility, not realized vol.
Quote from Maverickz:
I understand about synthetic straddles but wasn't going to try and cover every possible trade and all it's synthetics in a single post. Also I never said that volatilty couldn't or wouldn't move higher with the price. I said that "selling a straddle is more profitable WHEN volatility is high and moving downward". Meaning that if the options you are selling are over priced when you sell the straddle but are starting to move downward you would capture a larger premium. I was not talking about any specific stock.
I was just giving examples of straddles since you defined a straddle as a call and a put, which is correct but its not limited to that. âOverpricedâ is really just a matter of opinion, therefore I donât generally refer to volatility as over priced or under priced in that way.
Quote from Maverickz:
If you sell a straddle you are generally expecting the underlying to stay between the break even points. Price action and volume will be the primary indicators as to if this will happen or not. Yes you should worry about Vega but it is not THE primary thing to be concerned with.
When you sell a straddle youâre expecting implied volatility to fall, thatâs the primary variable to be concerned with, not theta.
Quote from Maverickz:
While I agree that there are advanced methods to repair or roll a straddle to lock in profits, or reduce risk, I considered repair strategies and rolling strategies as out of scope for this thread.
No problem, I was not really speaking in the context of repair or rolling. I was noting that if you sell longer term straddles then 2 to 4 weeks there are ways to trade around them and build a greater more profitable position. But, I do agree itâs a bit more advanced then need be for this thread, the issue was that straddles in no way should be looked at as only a 2 to 4 week position all the time.
Good Thread