Wednesday, December 2, 2009

RE: [TheOptionClub.com] GOOG [was Re: Basic Calendar Question]

 

Thanks mc. for yor views.

--- On Wed, 2/12/09, mcatolico <mcatolico@mindspring.com> wrote:

From: mcatolico <mcatolico@mindspring.com>
Subject: RE: [TheOptionClub.com] GOOG [was Re: Basic Calendar Question]
To: OptionClub@yahoogroups.com
Date: Wednesday, 2 December, 2009, 8:22 AM

 

 

 

Mehta, asks:

<…>

can u please advise me something more for day of expiration stratagy. I usually buy both call and put in same quantity (at the money strikes) hoping that as market moves any one side significantly. . I make money... keeping in mind that I may loose almost all the money if market dont moves from my stike price. most of the time I survived with some profits atleast.

 

can you please advise some other way to optimise my trade ...I dont wish to short the options.. it demands lot of money which I dont have.

 

Mc – Mehta, there's not much  I can really advise. Basically you are making a bet on volatility on expiration Friday. If you buy the straddle, as far as I know, there's no real way to determine in advance how the underlying will move, if at all.  Since most of the premium in otm options is nonexistent on the last day of trading, you either have to take on huge risk (e.g. sell 5, 10 or whatever number of otm strangles you need to sell to own one atm straddle cheaply) or else you need to be very good at trading each and every wiggle  and bounce that allows you to scalp your straddle position.

in general I'd be much more inclined to sell the straddle and hedge only when I couldn't stand the risk but taking the opposite point of view, I would only hedge the long position when it looked like the pain that a short holder was experiencing became apparent. Example: assume stock abcde is trading at 90 and the 90 straddle is trading at $1.00 on expiration Friday morning. The seller of that straddle is going to start to panic if the underlying drifts to say 90.70 or 89.30. at that point you might see some sizable hedging which would instantly push the stock another nickel or so on volume. That's the message that the shorts are covering and it's the time for the long trader to hand it back to the defeated shorts. At 90.75 or so I'd be giving the shorts the stock they need and probably overselling my deltas if I were in a speculative mood. As soon as the hedger panic subsides the stock would likely settle back in the 90.50-90.60 range at which I'd cover the extra short deltas I sold and then wait to see what happens next. It takes a lot of guts and finesse to trade this way and it's not really my strength but I've played things this way occasionally with some success.



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The INTERNET now has a personality. YOURS! See your Yahoo! Homepage.

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