Options in Practice: basic questions

[tradingnoob9]

cool thanks for that quick reply!

was also wondering, is there an obvious error at Risk Latte - Volatility Today

under case 3, shouldn't the buying and selling of yen leave a net balance of 2.4million yen i.e. $22,857 USD hedging profit (not the stated 7582 USD) ?

 

[jamescummins]

I only spent a couple of mins looking at this just now, but I think you are right. I cant see what they ahve done to get 7582 USD.
Just thinking in % terms, the gain on the hedge is roughly .75%, which is roughly 24k. I think it should be 22857 as well...

I guess we need someone else to step up and corroborate this!

 

[tradingnoob9]

another q:

if you have a 1mth straddle you can easily get the breakeven points. You can see what movement in the underlying stock/exchange rate/etc. you need in order to break even, so you could divide that by say 24 trading days (1 month) to see on average the daily movement required to break even.

Now what about the imp vol side of things. If the spot rate just sat there at the strike (i.e. the straddle was struck ATM), you'd be paying decay and eventually after 1 month ur option would be worth 0. So what jump in imp vol is needed to breakeven i.e. a "Break even imp vol"? Can you simply look at the BS formula and find the level of the imp vol that would give you twice the current option premium (so that if the IV increased to that new level just before expiry, your option position would be back to where you started at ) ?

And to add to that, you can get combinations of the two i.e. if IV rises by a bit, then the spot needs move somewhat less than earlier in order to break even?

 

[amtrader1]

Hello,

I'm a FTSE day trader. My strategy is to trade on both sides of the open for a reversion to the mean or retest of initial balance highs and lows and lately I've been getting stopped out a lot using futures only to see the trade move back into my direction. The other problem I have is that employing my strategy, I have to wait for a price signal and cannot just buy or sell at resistance. What I'm looking for is a tool where risk doesn't need to be defined and I can still make a short-term bet on market direction.
Can I use options to do that? Should I use options very close to expiry? What is the cost of buying and selling a FTSE call or put option? My average profit target is 20-30 points, would I make money using options for such small profit targets?
Any replies to above questions, much appreciated.