34 lines
2.3 KiB
Plaintext
34 lines
2.3 KiB
Plaintext
826 Part VI: Measuring and Trading Volatility
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TABLE 39-1
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January February April July October January LEAP
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Call price 1.25 2.25 3.50 5.00 6.00 7.15
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Put price 1.50 2.35 3.35 4.35 5.00 5.55
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Call delta 0.48 0.52 0.55 0.58 0.60 0.62
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Put delta -0.52 -0.48 -0.45 -0.42 -0.40 -0.38
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Neutral ~ 1-to-1 ~l-to-1 ~ 1-to-1 ~2-to-3 2-to-3 ~2-to-3
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Debit 2.75 4.60 6.85 23.05 27.00 30.95
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Upside break-even 42.75 44.60 46.85 51.57 53.50 55.47
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Downside break-even 37.25 35.40 33.15 32.30 31.00 29.68
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dar spread is too much of a burden"° either psychologically or in terms of commis
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sions, and so this strategy is only modestly used by volatility traders. Some traders will
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use the calendar spread if they don't see immediate prospects for an increase in
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implied volatility. They perhaps buy a call calendar slightly out-of-the-money and also
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buy a put calendar with slightly out-of-the-money puts. Then, if not much happens
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over the short term, the options that were sold expire worthless, and the remaining
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long straddle or strangle is even more attractive than ever. Of course, this strategy has
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its drawback in that a quick move by the underlying may result in a loss, something
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that would not have happened had a simple straddle or strangle been purchased.
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SELLING VOLATILITY
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If one were selling volatility (i.e., volatility is too high), his choices are more complex.
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Virtually anyone who has ever sold volatility has had a bad experience or two with
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either exploding stock prices or exploding volatility. Some of the concerns regarding
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the sale of volatility will be discussed at length later in this chapter. For now, the sim
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pler strategies will be considered, in keeping with the discussion involving the cre
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ation of a volatility trading position.
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Simplistically, a volatility seller would generally have a choice between one of
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two strategies (although there is a more complicated strategy that can be introduced
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as well). The simplest strategy is just to sell both an out-of-the-money put and an out
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of-the-money call. The striking prices chosen should be far enough away from the
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current underlying price so that the probabilities of the position getting in trouble
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(i.e., the probabilities that the underlying actually trades at the striking prices of the
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naked options during the life of the position) are quite small. Just as the option buyer |