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training_data/relevant/text/dc9c6d7eab75a4a21e4d5baeb2936c4556d8057eeeaf3daa06b57288ddc6e04b.txt

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+EXHIBIT 15.4 Analytics for long 20 Acme Brokerage Co. 75-strike
+straddles.
+As with any trade, the risk is that the trader is wrong. The risk here is
+indicated by the −2.07 theta and the +3.35 vega. Susan has to scalp an
+average of at least $207 a day just to break even against the time decay. And
+if IV continues to ebb down to a lower, more historically normal, level, she
+needs to scalp even more to make up for vega losses.
+Effectively, Susan wants both realized and implied volatility to rise. She
+paid 36 volatility for the straddle. She wants to be able to sell the options at
+a higher vol than 36. In the interim, she needs to cover her decay just to
+break even. But in this case, she thinks the stock will be volatile enough to
+cover decay and then some. If Acme moves at a volatility greater than 36,
+her chances of scalping profitably are more favorable than if it moves at
+less than 36 vol. The following is one possible scenario of what might have
+happened over two weeks after the trade was made.
+Week One
+During the first week, the stock’s volatility tapered off a bit more, but
+implied volatility stayed firm. After some oscillation, the realized volatility
+ended the week at 34 percent while IV remained at 36 percent. Susan was
+able to scalp stock reasonably well, although she still didn’t cover her seven
+days of theta. Her stock buys and sells netted a gain of $1,100. By the end
+of week one, the straddle was 5.10 bid. If she had sold the straddle at the
+market, she would have ended up losing $200.