14 lines
914 B
Plaintext
14 lines
914 B
Plaintext
in realized volatility. The rise in IV did indeed occur, but not immediately.
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By Tuesday of the second week, vega profits were overshadowed by theta
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losses.
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Gamma was the saving grace with this trade. The bulk of the gain
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occurred in week two when the Fed announcement was made. Once that
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event passed, the prospects for covering theta looked less attractive. They
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were further dimmed by the sharp drop in implied volatility from 40 to 30.
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In this hypothetical scenario, the trade ended up profitable. This is not
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always the case. Here the profit was chiefly produced by one or two high-
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volatility days. Had the stock not been unusually volatile during this time,
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the trade would have been a certain loser. Even though implied volatility
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had risen four points by Tuesday of the second week, the trade did not yield
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a profit. The time decay of holding two options can make long straddles a
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tough strategy to trade. |