When's the good time to buy Straddle?

R

rabbitsfoot

If I'm buying a straddle, I should be buying it when the IV and the price is low and selling it when the IV and its price is high.

However if I'm targeting earnings, I notice that IV is anyways high for options that expire after the earnings of that stock, even if that expiration date is 2 months in the future.

In other words, IV for an option is anyways more than 50% for the option that's expiring after the earnings call. So when is the good time to get in?

Thanks!
 
rabbitsfoot said:
If I'm buying a straddle, I should be buying it when the IV and the price is low and selling it when the IV and its price is high.
More...

Not likely. You buy a straddle when you expect the stock will be more volatile than the current option prices imply. You sell it when you expect the prices are accurate or there no longer the expectation of excessive price movement.

If you want to trade options around earnings, I suggest you back test those strategies for each symbol. Examine when to enter and when to exit.


Bob
 
rabbitsfoot said:
If I'm buying a straddle, I should be buying it when the IV and the price is low and selling it when the IV and its price is high.

However if I'm targeting earnings, I notice that IV is anyways high for options that expire after the earnings of that stock, even if that expiration date is 2 months in the future.

In other words, IV for an option is anyways more than 50% for the option that's expiring after the earnings call. So when is the good time to get in?

Thanks!
More...

How about when IV Rank is near the 52 week low and there is potential for a event to suprise the market, but you don’t have a sense of which direction the instrument may take after the event? To sum up, a list of conditions are shown below:

1. Low 52 week IV rank
2. Expected range expansion
3. Low directional confidence

Although there may be a statistical edge for buying staddles when IV is low, it may be better to wait for a scheduled event that is below the market’s radar. Situations that may fill this criteria but are not fully priced into the market tend to be indirect, such as tradeshows and pending legislation involving indirect competitors or suppliers. It really pays to know the instrument and industry inside and out you are trading in order to have an edge over the competition and find pricing opportunities that have a positive expectation.
 
your probably fine wait very late in the day to do it so you have the exact strikes. its sometimes hard to outperform the vols best of times so you might wanna consider selling a wing one side or both like a fly if u have a view. the edge is being able to trade exactly the right strike and the wing sales since the straddle implied breakevens look too high if anything. maybe weight it a bit short delta, do not get ear pods, sorry :) i doubt u cold lose much worst case.
 
note even on very wacky moves still don't wait for it to expire make sure u leave some orders. use the very high vol for deltas please so u don't nail all of it before the pods are announced :)
 
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