First of all, the ATR indicator is rather misleading when it comes to long straddle trades, for who is to say that one bought the absolute bottom or sold the high, the chances of the former are low. Moreover, the straddles are priced very efficiently with multiple exchanges competing for volume and stocks like JNJ and PG don’t move much right?
Contrary to popular belief, many consumer staple stocks have been moving much more than one would think. PG, JNJ, CLX, and even PFE are all within striking distance of 52-week highs. This slow grind higher represents complacency in the market. In many names implied volatility is near historical averages, however the market is not in an average period of time. Multiple unordinary measures have been taken to ensure a bullish market, with that said and considering the VIX came in 5% yesterday; perhaps it is time to look at long Vega trades as the fiscal cliff looms ahead.
For example, CLX Jan 13 (30 days) strangles can be put on for nearly $1.20 at the $77.5/$75 line or 1.5% of the stock. Other volatility can be bought, like in WMT, the $70 straddle can be bought for $2.70 or 3.8% of the stock. The bottom line is that volatility seems to be coming in as a massive macro event comes closer.
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