Options educational content provided courtesy of ChartBender.
April 11, 2008
Option Idea of The Week
On March 31st, 2008, ChartBender's Real-time IV Top 20 report identified a strangle that was expensive on a relative basis. The trade was the KMX April 15/17.5 strangle. At that time, the trade's fair value was $2.55.
ChartBender's IV Top 20 Report directs one's attention to the ideas that are likely to warrant further research, thereby saving time and helping the trader seize opportunities.
What did the trader find out about KMX upon looking closer? Implied volatility had made an unusually large, one-day contribution to this strangle's value. This is conveyed on the IV Top 20 report itself, but a confirming visual can be seen looking at the ChartBender Pro IV Analysis tool. For a speculator who's not afraid of a short strangle's exposure, this trade paid off. As of the close on Friday, April 11th, the trade had produced $120 in profits per strangle.
For those who are more risk-averse, the risk in this idea could have been very well contained just by making an iron condor out of it; that is, by purchasing a wider April strangle, such as the 12.5/20 strangle. A nice reward still materialized.
It is our pleasure to offer OLI readers this exclusive offer to save 59% on our educational video: "Investigating The Covered Call". When ordering, just type "OLI" in the "promotional code" field to get the entire video for just $20. Learn More | Order Now
This is not a solicitation or recommendation to buy any securities, options or financial instruments of any type. Any information in this email is for educational purposes only.
This is not a solicitation or recommendation to buy any securities, options or financial instruments of any type. Any information in this email is for educational purposes only.
Weekly Newsletter
printer-friendly format