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Long volatility

Buy the straddle when the market is under-pricing the move.

Thesis

Some names systematically realize moves larger than implied — small caps, recent IPOs, biotech, and high short-interest names with binary catalysts. If realized vol on the last 4 prints averaged 1.4× implied, the market is structurally under-pricing this name's earnings.

Setup: ATM straddle

  • Structure: Buy the ATM call + ATM put on the expiry just after earnings.
  • Entry timing: 1–3 sessions before the print, after IV has expanded but before peak.
  • Break-even: Stock needs to move ≥ the straddle cost in either direction.
  • Exit: Close the morning after the print. Do not hold for the drift — theta + IV crush will eat the winning leg.

Position sizing

  • Max loss = straddle debit. Size so it's ≤ 0.5% of account equity.
  • Win rate on this trade is typically 30–40%. Need wins to be 2–3× the losses.
  • Strangle (OTM call + OTM put) is cheaper but needs a bigger move to break even.

Edge sources to look for

  • Realized vol ratio > 1.2× on last 4 prints.
  • Short interest > 15% of float — squeeze risk on a beat.
  • Sector peer just reported with a >15% gap.
  • Implied move < 5% on a name historically known to move 8%+ (cheap vol).