Hello, friends. I hope you’re enjoying our new Options Theory blog! In our third installment we are going to focus on how to sidestep direction and bet instead on volatility. In Derivatives and the 3D’s, we introduced the three primary variables of interest to options traders. Namely, direction, speed, and magnitude. The latter two can be expressed by saying “how fast” and “how far.” Today I’d like to focus on how options traders make bets on how far a stock moves, irrespective of direction. Wagers like these fall under a category of trades known as volatility strategies.
Fundamentally, there are two types of volatility trades. Those that profit if the stock moves more than expected. And those that profit if the stock moves less than expected. The former group consists of strategies like long straddles, strangles, inverted butterflies, and debit condors (aka debicons). The latter group includes strategies like short straddles, strangles, butterflies, and iron condors.
Learn how to bet, deposit money using various payment methods, withdraw your winnings and how to reset your account in case you forgot the password. Odds of -110 (1.91 in decimal odds format, 10/11 in fractional odds format), which means for every $110 staked you stand to win $100. You don’t have to stake as much as $110 of course, but the point is that. The teaser bet is a bit like the cousin of the parlay. The only difference is that you get some. A bet option is a type of options contract where the holder either gets a fixed amount if the option is in the money, or receives nothing. This type of option can be risky but, like others, can be bought and sold on the open market freely, allowing traders to speculate on bet options.
Delta Neutrality
Let’s use the greek delta to help illustrate how a pure volatility bet would work. If you don’t already have a working understanding of the options greeks then run, don’t walk, to the Options 101 video series. You’ll learn all about them in Module 4.
![Put Put](/uploads/1/3/7/1/137142837/138018715.jpg)
Delta measures an option’s sensitivity to stock movement (direction). The higher your position’s delta, the more exposure you have to movement in the stock price. And the lower your position’s delta, the less exposure you have to movement.
Is it possible to not have any exposure to a stock’s price movement? In other words, is it possible to sidestep directional bets altogether? You betcha! That’s the whole premise of today’s piece. Haven’t you been paying attention?
To accomplish this, you simply need to trade what are known as “delta neutral” strategies. They are neutral because the delta is zero.
Let’s focus first on the volatility trades that profit if the stock moves more than expected. These are known as long volatility trades because you want volatility to increase. Next time we’ll look at short volatility plays.
Suppose we have a stock trading for $100 and we think it’s poised for a big move, but we don’t know in which direction. And it’s not just that we believe that it’s going to move. We believe the stock will move more than expected. That’s the key! To capitalize, we could enter a long straddle trade by purchasing an at-the-money call, and an at-the-money put. Suppose they cost $3 apiece or $6 total. To at least break even we need the stock to rise or fall by $6. That means our upside expiration breakeven price is $106 and our downside breakeven is $94.
Think about that for a second. The value of the straddle tells us what the market is expecting, what it is pricing-in. In this case, we’re talking Table tennis major tournaments. $6. So, the only reason you would want to buy the straddle is if you think the stock has the mustard to move more than $6. If based on your analysis you believe that this $100 stock could pop to $110 or drop to $90 by expiration, then buying the straddle for $6 is a good bet.
Volatility Visualization
I visualize this situation like so.
Since the range I expect is larger than what the straddle is pricing in (i.e., what the market expects), I want to be a volatility buyer. That is, I want to go long volatility!
To further illustrate how this is a pure volatility bet we can look at the greeks of the position. We’ll focus on delta and vega since those are the two relevant to today’s discussion.
Since both the call and the put are at-the-money options, they carry deltas of 50. But while the call delta is positive, the put delta is negative. If you add them together you discover the net delta is zero ((+50) + (-50) = 0). That means it doesn’t matter if the stock rises or falls. Either way, your position won’t be impacted (at least initially) because the delta is zero. If the stock lifts $1, the call will gain $50, but the put will lose $50. And if we fall the put will gain $50 but the call will lose $50.
Got it?
Meanwhile the vega of both the call and put are positive so you will have exposure to volatility (that’s what vega measures). Suppose your net delta is zero, but your net vega is 40.
Were we to really go down the rabbit hole, we could discuss how the delta doesn’t remain neutral if the stock rises or falls, but I suspect I’d risk losing some readers at that point. Let’s summarize the key takeaways.
It’s possible to make a bet on how much the market will or won’t move using volatility trades.
The common characteristic among these trades is they start out delta neutral.
Trader anticipating the market will move more than expected go long volatility.
Traders anticipating the market will move less than expected go short volatility.
Next time we’ll take a look at a short volatility example.
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Also see:
Chiefs vs. Buccaneers odds, picks and predictionHow to watch the 2021 Super Bowl2021 Super Bowl money line (ML)
Odds via BetMGM; access USA TODAY Sports’ betting odds for a full list. Lines last updated Friday at 3:42 a.m. ET.
Chiefs: -160 (bet $160 to win $100) | Buccaneers: +135 (bet $100 to win $135) Bet now!
The Super Bowl money line simply asks for which team will win the game. Kansas City is favored at -160 with an implied win probability of 61.54%.
The Buccaneers’ implied win probability is 42.55% as +135 underdogs. Those odds can be expressed as a fraction of 27/20 or a decimal or 2.35.
A money line wager on the standard, two-way line includes the possibility of the game going to overtime and will be paid out in the moments after the clock hits 0:00.
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2021 Super Bowl against the spread (ATS)
Chiefs -3.5 (+100) | Buccaneers +3.5 (-120)Bet now!
The defending champion Chiefs need to win by at least 4 points in order to cover the spread in Super Bowl 55. It would take a $100 bet to earn a profit of $100 if they succeed.
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![How To Bet Options How To Bet Options](/uploads/1/3/7/1/137142837/189680299.jpg)
The Buccaneers can cover the 3.5-point spread either by winning outright in an upset or by staying within 3 points in a loss. Their side of the spread requires a $120 bet for a profit of $100.
Different spreads exist for each quarter or half. Alternate lines come with different odds related to each team’s likelihood of covering. For example, the Chiefs can be taken on a full-game spread of -1.5 with less profitable odds of -155 for a win by 2 or more points.
2021 Super Bowl Over/Under (O/U)
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The Over/Under is the projection for how many points the Chiefs and Buccaneers will combine to score in Super Bowl LV. A total of 57 or more points cashes all Over tickets; fewer than 56 points scored in the game is a win for Under bettors.
Like with the spread, the Over/Under can be bet in each quarter or half. Alternate lines can be bet for a greater profit or a higher likelihood of winning.
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2021 Super Bowl prop bets
Arguably the best part of Super Bowl betting is the wide-array of prop bets available at BetMGM. These can be broken into three main categories:
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Game props
Super Bowl game props cover everything that happens from the opening kickoff to the final whistle and includes asking for the specific result of the first and last plays of the Big Game.
You can also bet on how many touchdowns will be scored or turnovers will be committed Sunday, the biggest play of the game, or whether the game will go to overtime.
Player props
The most extensive list of betting options for the Super Bowl pertains to player props. Odds exist for pretty much anything any player could do Sunday. Bet on who will score the game’s first touchdown or be named Super Bowl MVP.
Novelty props
This is where the real fun is and can capture the attention of even non-football fans watching the 2021 Super Bowl. Among the highlights are:
Length of the national anthem sung by Eric Church and Jazmine SullivanResult of the opening coin flipSongs sang in The Weeknd’s Super Bowl halftime showColor of Gatorade dumped on the winning coach*Note: Not all novelty props mentioned may be listed at BetMGM.
Want action on the Big Game? Sign up and bet at BetMGM. If you’re looking for more sports betting picks and tips, visit SportsbookWire.com. Please gamble responsibly.
Also see:
Bucs take long break at practice to simulate extended Super Bowl halftime (Bucs Wire)Report: Over 20 Chiefs players, staffers exposed to COVID-19 by barber (Chiefs Wire)Follow Esten McLaren on Twitter. Follow SportsbookWire on Twitter and like us on Facebook.
How To Bet Against A Stock With Options
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