$FAS trade closed for loss

I took a $2.50 loss on $FAS as my long stock hit the stop loss of $4.16 yesterday.

In retrospect, this trade was not very well thought through. I initially sold a straddle in $FAS because I was intrigued by the 250% volatility. As it turns out, high volatility can cut both ways. The only redeeming aspect of the trade is that I defined my risk after my initial indiscretion.

I don’t see myself selling straddles again any time soon. They are more useful in pricing the market expectation for a move. For example, if you add the cost of the at-the-money straddle to the just out-of-the-money strangle and divide by two, you get what the market expects to be the move in the underlying. This can be useful ahead of earnings or some sort of significant announcement.

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