Buy Straddle

Source: Buy Straddle, pg. 123-125, Fontanills, G., trade options online

Usage: You feel Amazon.com is going to move but not sure in which direction. You desire Implied Volatility to be low, you want to pay a low premium to buy a call and a put. In the case of Amazon.com at the end of 1998, what appears to not be low IV becomes low relative to what happens next.

Profits: Open ended in either direction as long as AMZN moves away from 190 and past break-even. AMZN has to move sufficiently to overcome the cost of paying for the put and call positions. Break-even in graph is 131.13 and 248.86 at expiration. AMZN leaps to 351 in 24 days and this Dec 98 AMZN trade is highly profitable.

Losses: Limited to amount paid for both options ($5887) if price remains at 190 at expiration.

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Quoted profitModel profitQuoted PriceModel price Delta
(Shares)		GammaVegaTheta
$ -187.50 $ -187.40 57 57 14.6 1.0880 $ 49.87 $-65.87

Statistical Volatility Estimate For Probability Calcs: %

Days From TodayProb of ProfitExpected ProfitOdds of Success
14 34.1% $123.27 1.2 to 1
28 38.9% $455.28 1.4 to 1
Expiration 44.3% $815.12 1.5 to 1

Green is current market conditions
X AMZN @
Quote = 27 1/8, Model = 27 3/16, Delta = 57, IV = 107.6%, IV_EST = 107.9%, Volume = 503, OI = 1042
Bid = 26 1/8, Ask = 28 1/8,
AMZN @
Quote = 29 7/8, Model = 29 13/16, Delta = -42, IV = 117.0%, IV_EST = 116.7%, Volume = 98, OI = 413
Bid = 28 7/8, Ask = 30 7/8,