Who buys options?

Who buys options?

1) Practically anyone who does some sort of a spread - one leg will usually be a long corresponding to a short (eg credit spread, calendar etc)
2) If you mean who ONLY buys options without selling a leg, then it happens a lot more often than people like to admit (*cough* - you get called a sucker).

I don't do this type of trade often, but last week I bought a JD atm straddle. Why? Cos I'm a sucker.
No seriously, here's the rational :
- 5 out of the last 7 cycles, the stock has moved almost 10% from that day to T-0
- the rising vol (due to earnings) will put a floor on the theta decay.

I'm looking for any movement in the stock, irrespective of direction.
 
caroy said:
I buy the ATM straddle consistently on expiration days. I do this because on this day they are the best way to buy gamma and profit from intraday moves in the underlying. And as it's expiration day I'm flat these positions by the end of the day. Usually I'm flat them in under an hour from putting them on. I prefer doing them in /ES but have had success in individual stocks as well. I would tend to agree that buying an ATM straddle with 30 DTE plus is usually a sucker's bet.
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Do you look for IV to at specific range?
 
Arrow78 said:
Do you look for IV to at specific range?
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With the /ES I wait till the initial theta bleads off after the open. So I enter around 10:30 EST. Usually you can buy the straddle at this time for under 20 points or under $1,000. Usually a move one way or the other to turn it profitable. I'm done by 2:00 PM as my experience the last hour the movement doesn't justify being long the straddle. With individual equities pretty much the same. I look for individual stocks to play this in that have a good daily price movement. I tend to leg out of these as the trade goes on closing down the losing side and letting the profitable side run. In /ES I do not leg out. /ES has the advantage as you can trade the straddle M,W, and Fri as there are more expiration days to play. I think you'll find on expiration day it isn't that the Greeks stop working but they just don't follow the usual playbook. Theta will show up as a bigger number than the value of the option which is impossible. Gamma goes to infinity at the ATM strike as the closing bell approaches. Long and short of it is that only on expiration day or close to it can you control a position that would usually cost thousands of dollars for a couple hundred. This leverage in my opinion coupled with the risk management of using long rather than short options makes the straddle uniquely suited to be long on expiration day. For example in /ES if margin is usually $11,000 a contract i can have the same profit potential of being long the futures buy being long or short and ATM call or put for a few hundred on this day. The window only lasts till 3:00 PM but you don't need much of a move to make a good return on capital this day. Same logic applies to an individual stock or any other commodity on this unique day. The other thing I like is my account is flat every night. No gap exposure no early exercise. It's been working for me the last few months. Maybe it's just luck but it seems to be consistently profitable so far. It's just hard to back test at all as entries are somewhat subjective and the intra day range provides a chance to exit at a profit but if you miss it it may end the day as a loser so it's pretty discretionary when to exit etc. Get a feel for it I guess.
 
qlai said:
What percent of premium are you loosing on the loosing leg?
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Could be all of it but as long as the winner runs it isn't an issue. I have some logged on my journal page. I don't put most of the /ES ones on as I can trade five to six of them entering and exiting throughout the day and the journal is mostly to log the weekly flies.
 
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