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Tag Archive | "straddles"

Straddles and the Volatility Risk Premium

Wednesday, September 30, 2009

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Felix Goltz and Wan Ni Lai, “Empirical Properties of Straddle Returns,” The Journal of Derivatives 17:1 (Fall 2009), 38-48. Abstract: An at-the-money (ATM) straddle, i.e., going long an ATM call and an ATM put with the same maturity, is generally thought of as a volatility trade. It is essentially delta-neutral, but a large price move in either direction or an increase in implied volatility will produce a profit. A delta-neutral straddle position also has zero beta, so…

Market Neutral, Not Delta Neutral

Tuesday, August 12, 2008

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There are plenty of ways to put on option trades that have a neutral outlook: straddles, strangles, condors, etc. Whereas stock and futures traders are limited to whatever price action the market gives you, options let you take a view on implied volatility (vega), the passage of time (theta), and the rate of change of the rate of change of the option per unit move in the underlying (gamma). Okay, that last one isn’t so obvious, but the idea is…