I came across a post in an option trading board that I frequent. The post refers to a recent short straddle trade on AAPL and it reads:
"Covered straddle at $16.15, I just wanted to profit from the IV drop, from 54% to 41% in NOV straddles. Great example of knowing how volatility works. Stock gapped from 174 to 187 and the 175 straddle went from 19.30 to 16.15 when I covered at 9:41 AM. Vol crush.
People who bought the straddle expecting a big move, got the move but still lost money, purely on volatility."
I could not have said or demonstrated this any better myself. Most of the option picking services that I've come across explain how to use options in a leveraged fashion to capitalize on price movement. Rarely, bordering on never, do I see them mention volatility or the implications of volatility on their positions. If you're considering options in any fashion, spend the time to learn about how volatility will play on your position. If you're speculating on price alone, you're likely missing half of what's causing your option value to change.
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