Exploiting volatility spread between Implied volatility and historical volatility. Western union Implied vols falling down once the rally picked up in the equity market. Current implied vols of 40 for aug 09 contracts is at its historical lows. This gives an opportunity to buy some volatility at this level.
WU aug 09 strike: 17, underlying: 16.51, straddle costing 3.1 debit. trade date: 5/24/09. for 10 contracts, net debit will be 3100.
this position will loose if underlying moves nowhere. Time decay will be eating into the premium. Best case for this trade is underlying moving above 20 or below 14. rising volatility will add some more to our profits.
Since this is a long position, this will needs no initial margin requirements.
best trading
regards
Chandra khandrika
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