Day Trading Futures

[arcus]

My dear friend if the volatility of Infy goes on decreasing and infy remains constant at the same price for next 2 or 5 days. Even then if the IVs rise and reach 90 on at the money you will earn your money. Why are you complicating the simple subject by bringing in nuisance or noise terms. Tell me really Are you trying to confuse the people in this forum by complicating simple things like options

The price you make is proportional to the demand of the strike price of the option which you have purchased.

Even if the IV reach 90 or more before the results announcement (which is very unlikely for ATM options), the instant the results are announced the IV crashes to 18 or so. Its called an IV crunch.

Those who are long gamma lose a lot of money from the IV crunch.

 

[lemondew]

Arcus,

Yes perfect the best strategy here would be to exit 1 day prior to result you will make your money .

You would loose if the IV goes on decreasing from now on till the result day. In that case selling a strangle would be good.

Even if the IV reach 90 or more before the results announcement (which is very unlikely for ATM options), the instant the results are announced the IV crashes to 18 or so. Its called an IV crunch.

Those who are long gamma lose a lot of money from the IV crunch.

 

[arcus]

Arcus,

Yes perfect the best strategy here would be to exit 1 day prior to result you will make your money .

You would loose if the IV goes on decreasing from now on till the result day. In that case selling a strangle would be good.

Yes, its a well known earning's strategy but there are risks involved.

The most common risk here is that the IV doesn't always spike before results announcement. As a result the theta decay overpowers the vega spike.

The time of the maximum premium (climax) need not always be a day before the results announcement. It could be 2 days before or 3 days before announcement.

Sometimes, the IV crunch sets in the day before the results announcement. (Especially if there is an insider leak of results)

So yeah, best of luck with your trade but remember that there are risks and its not a sure thing.

 

[Somatung]

That is not true.

SV is a measure of the past and IV is a measure of the future volatility of the underlying.

IV has nothing to do with the options price volatility.

Of course it has. If SV or IV of the underlying is rising or declining = Market moves either up or down.

This means the demand on the options on different strike levels is rising or declining, because of this market moves.

This rising demand or declining demand on this option strike levels are also shown in the rise or decline of the IV from those specific options. High demand = Higher IV = Higher pricing of the value of the option.

We even can see a huge different in the IV of any option on any strike level under absolute normal market conditions.

The IV of itm, atm and otm options are even under normal conditions huge.

http://www.optiontradingpedia.com/volatility_smile.htm

http://www.investopedia.com/articles/optioninvestor/05/020205.asp

Hope this cleared the confusion and have a nice weekend.

 

[Somatung]

My dear friend if the volatility of Infy goes on decreasing and infy remains constant at the same price for next 2 or 5 days. Even then if the IVs rise and reach 90 on at the money you will earn your money. Why are you complicating the simple subject by bringing in nuisance or noise terms. Tell me really Are you trying to confuse the people in this forum by complicating simple things like options

The price you make is proportional to the demand of the strike price of the option which you have purchased.

Dear friend

Why are you complicating your questions and not directly say what you want like: Can I implement a Straddle or Strangle one or two or three days short before the 15 of April? This would already show that you have an idea about what you want to do.

Simple answer:

Yes you can, but you would have to be much more careful when doing it two weeks in advance, as time decay could kill more then you probably could make even with a spike up in volatility in the underling (because of a big move) and the indirect impact of the IV in the options in one day.

Hope also this is now cleared and also to you: Have a nice weekend.

 

[Somatung]

Yes, its a well known earning's strategy but there are risks involved.

The most common risk here is that the IV doesn't always spike before results announcement. As a result the theta decay overpowers the vega spike.

The time of the maximum premium (climax) need not always be a day before the results announcement. It could be 2 days before or 3 days before announcement.

Sometimes, the IV crunch sets in the day before the results announcement. (Especially if there is an insider leak of results)

So yeah, best of luck with your trade but remember that there are risks and its not a sure thing.

@Arcus

This is also a very nice explanation about the risks involved in the strategy. By the way: Have seen you discussing in the past about SV with an other member here in the forum. But yes there the impact between the future SV/IV and the impact to the option IV was not discussed as it was discussed in todays chat.

 

[arcus]

The IV is the implied volatility of the options and not of the underlying.

Show me one website which says IV is the implied volatility of the option and not the underlying.

IV is the implied volatility of the stock/index and it takes the option price among other things into consideration for arriving at the formula.

If the IV is 14%, then it means the option has priced in a move of (approximately) 14% of the stock/index (i.e. the underlying) in one year.

It does not mean the option price is going to move 14%.

The options price volatility is always much much higher than the IV.

As for the volatility smile, cheaper OTM options have higher IV's because of the tail risks & black swan risks taken by the option writers not because there is a "greater demand" for them.

 

[arcus]

@Arcus

This is also a very nice explanation about the risks involved in the strategy. By the way: Have seen you discussing in the past about SV with an other member here in the forum. But yes there the impact between the future SV/IV and the impact to the option IV was not discussed as it was discussed in todays chat.

Yes, it was with DanPickUp here.

He got confused between standard volatility and statistical volatility.

 

[Somatung]

@Arcus

I am sure you will find for what ever you search for. A good exercise I can recommend you is to study for a few weeks/months daily all the option strike levels your market offers. You then may will be able to recognize that I with no word posted: OTM options have a higher IV because only of the demand (if even on those strikes). You then also should be able to recognize what I posted about the relations between the SV/IV of the underling and the rise and fall of the IV in the options, beside the demand and decline of interest on those options. Good luck.

 

[lemondew]

"If SV or IV of the underlying is rising or declining = Market moves either up or down. "

Wrong. If the IV moves up people expect stock to move up or down but it (stock) need not move.
SV is nothing but measurement of annual volatility of the stock so obviously only when stock moves SV will change phew. So obviously SV can be constant but Iv can change.

"Can I implement a Straddle or Strangle one or two or three days short before the 15 of April?"

When should I implement what should I implement would depend on how I perceive things would pan out. Its a bad strategy to implement straddle 2 days before if IVs would have shot up if it has to. Then again if infosys opens flat you would loose. The better strategy which always worked till last result was to straddle long early and then sell it on the evening before results. The IVs always gave more profits than time decay.

The last result was different IVs crashed as time went on. Time decay losses are not much considering the result before last IVs were around 90 before result day and last result it was around 35. Anyways I dont expect Infosys to move much after results since market has factored to some extent bad results.

Whether people would bet on wild moves after results could decide whether it makes sense to bet on infosys.

Of course it has. If SV or IV of the underlying is rising or declining = Market moves either up or down.

This means the demand on the options on different strike levels is rising or declining, because of this market moves.

This rising demand or declining demand on this option strike levels are also shown in the rise or decline of the IV from those specific options. High demand = Higher IV = Higher pricing of the value of the option.

We even can see a huge different in the IV of any option on any strike level under absolute normal market conditions.

The IV of itm, atm and otm options are even under normal conditions huge.

http://www.optiontradingpedia.com/volatility_smile.htm

http://www.investopedia.com/articles/optioninvestor/05/020205.asp

Hope this cleared the confusion and have a nice weekend.