Lets say you have a stock like GROW or HANS - a real crazy stock that could easily go up 100% or down 50%. You don't want to predict, so you just buy both the calls and the puts expecting a big move in either direction. One contract will probably expire worthless and the other will be in the money big. You lose if the volume and volitility dries up and the stock goes nowhere and the profit on one contract isn't enough to cover the loss on the other.
What's the name of this strategy?
- Thread starter aeliodon
- Start date
An extremely risky straddle
I tried that recently on aapl earnings. I bought the cheapest .10 cent options. The problem is that time value eats you up much more than the price can move to make you money.
The big moves come during AH trading, your stops would be useless.
It's called gambling. Not that I'm against that from time to time.
On the topic of straddles, has anyone gone long a straddle ahead of earnings (by just a few days) and just tried to play the IV spike? Buy three or four days before earnings on a big-name media-friendly stock (AAPL, EBAY, etc) and close the position the afternoon before earnings come. I guess it would depend on how close to exp your options are, such that theta decay doesn't counter your volatility increase too much. Anyway, I'm sure that this is a common trade, I just honestly haven't done it before...
IV begins to rise weeks before an known earnings report comes out. A few days before and you are pretty much near the top of the spike. Go to ivolatility.com and enter a ticker for a stock like GOOG or AAPL and watch the IV path.