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I'd rather flush my money down the toilet, but that's just me

The chart babu posted is adjusted for the lag, or backdated, and is thus the more correct way of representing implied vs realized.

Some real heavy accumulation here. Tons of bid hitting but its just not going down. May be some big short covering, who knows. Nevermind, there it goes.

Just sell GBP

As said, the data is the same you posted, implied vol vs forward realized. And yes, "percentage points" refers to vol points. I didnt ask you to test the strategy, just to post the percentage spread in your data because it might be interesting for people to know. But if you dont want to...

Nice. I also found this graph lying around, from an old Goldman paper. The median spread is +2.7 percentage points from 89-05. It would be nice knowing the percentage spread in JGills data as well.

Sure, that is helpful :) I also found this interesting study on straddle returns on the DAX, which are delta hedged once every day...

You'd known had you read the thread before trying to educate me about your "transaction costs" and "4% jumps". But yeah Ill go put the trade on. And I'll watch out for those nasty "transaction costs", those things can really wipe you out.

What dmo refers to above is "gamma decay", or "Color". See picture: Other than that, I agree you won't really need any formulas unless you're in an investment bank (or just really love math).

I'm not there 24/7, but I can still have orders active on the exchange even if I'm not in front of the screen. It's called a market if touched order, not exactly rocket science. I also eyeballed the data from 2011, the worst I see is a 25pt drop in 30 minutes. In those 30 minutes I also see...

What I'm saying is if most of the market is losing money, chances are I'll be losing money as well regardless of the strategy. And the no transaction cost and continous hedging assumptions of BSM are faced by both option sellers and buyers, so the surpluss IV (Seller edge) is not due to that.

Interesting. I've always thought if realized was high, there would be more fear in the markets both amongst option buyers (leading to higher demand) and sellers (pricing their sales higher). Kind of like "fear breeds more fear".

If the market goes down 4% overnight I'm not the only one whos going to be losing money. Plus as I've already said, ES has no jump risks as it's trading ~24hr.

Eur usd spot is quoted in USD per euro, thus USD is domestic and euro foreign. If I remember correctly.

newwurldmn, I agree. short spikes may happen here and there. You mention high vols means less likelihood of realized below implied. Care to expand on this? Are there any papers on this?

Well, those risks go the other way as well. If you're long vola, VIX may go down, and you face theta risk instead of gamma. Historically speaking, realized vola has been below implied, so I'm thinking short has a better edge than long....but this is open to debate. ES options also a ~24hr market...

can't you just sell the straddle on say ES future options and then delta hedge it? Or am I missing something?

Future options use a different marginining system than stocks. (SPAN margin) and the margin is not fixed. It may take $1000 to open a trade but that margin might increase to $5000 in a couple of days depending on what the underlyer does, so watch out for that. IMO it's still a much better...

Long 15

Well, you could use Excel for backtesting. But it requires you be familiar with Excel, requires some time to set up, plus access to historical data.