A quick check of the IV chart shows that Dell has increased over the past month, but only 6-7 points from a low of around 31% to today's 36.31%: (look at the yellow line)
Let's take a look at the Jun 22 straddle (stock is closed today at $21.69). The EOD mark is 1.675, here are the Greeks:
Delta: -6.97 - small, as expected from a straddle this near the moneyBasically, we are hoping for a big move in the stock, that will hopefully overcome the volatility crush which is likely to be 6-7 points again--back to pre Earnings IV run-up. Using the thinkorswim analysis tools to factor in a 7 point drop in IV, as well as a $2 change in stock price (~9%) the value of the straddle would be worth 2.01 (we would buy it for 1.675).
Theta: -3.59 - not too high, which is nice, but we wouldn't care since this would be such a short-term play
Vega: 4.42 - small again, this coincides with what we are seeing in the ADBE straddles--that farther-out straddles have higher Vega
Tomorrow morning (May 29) I will place an order to buy 1 DELL Jun 22 Straddle. Hopefully earnings/guidance will move the stock enough to overcome the impending drop in IV.
Cheers.
1 comment:
Just a note- this trade is hoping for a big move in the stock. Looking at the small Delta you would believe this is a bad trade to capitalize on a big move in the stock. I believe Gamma (which is likely high for this position) is the key here, as the stock moves, the delta will change by some factor of the Gamma, so if the stock moves $2, the Delta is now going to be HUGE, and any further movements would be extremely profitable
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