Tag: volatility

What are straddles?

What are straddles?

Trading Strategies
With the implied volatility of the S&P 500 Index (as represented by the VIX) touching 18 and the 20 day Realized Volatility down at around 8%, I’ve been hearing quite a bit from students and colleagues about long gamma positions – straddles in particular. The idea is that volatility is so low that options are under-priced and should be purchased in bulk to profit from the impending price explosion. Without necessarily arguing for or against that position, what follows are some thoughts on what I believe to be very basic options strategy. The purpose of the straddle is to profit from either a gain in Implied Volatility or Realized Volatility (ie: a sudden change price movement). Since most beginning traders buy straddles in the hope of cashing in on an unforeseen breakout, it m