One can thus scan for average ranges outside the one-sigma range. This strategy is looking a gamma scalps or just straddle swings; depending on if traders want to lock in short term profits. The edge here is from statistics. This scan yielded many stocks, but some stocks of note included DE, XOM, TBT, X, SNDK, UNP, IBM, FMCN, NVDA, PCS and AAPL. So according to the rationale outlined above, because these stocks have been experiencing average ranges outside one standard deviation (over the last 21 (Fibonacci) periods) long volatility and long gamma trades could be suggested. There are many ways to estimate the implied move with options. Expected moves can be estimated by taking the event’s ATM (at the money) straddle and multiplying it by 0.85 to estimate 50% probability ranges, ATM times 1.25 for one sigma probability, and finally ATM straddle times 2.50 for the two sigma probability ranges. It also may not hurt to be long Vega going into the political incompetence event known as the ‘fiscal cliff.’
Feel free to e-mail any comments, feedback, suggestions, or general inquiries to… Author salernoma@mx.lakeforest.edu