Advice on exploiting low volatility - UAL

newwurldmn · Nov 13, 2015

They are afraid because they assume everyone runs significant leverage or they are just shouting hackneyed phrases: "nickels in front of a steamroller".

You cannot lose more money selling options than being long/short the equivalent amount of stock.

smile · Nov 14, 2015

Martinsos said:
@smile Thanks for heads up about the risks with naked selling - it is certainly something I will not do for long time or ever, but was discussing it as a hypothetical trade. However, John Carter here is selling naked put in his strategy, right? And then buying it to close when IV drops down.

Yes. Note the lower chart is the ATM put option which is very volatile. You could choose an OTM put to sell for less risk but less reward.

Sig · Nov 17, 2015

newwurldmn said:
They are afraid because they assume everyone runs significant leverage or they are just shouting hackneyed phrases: "nickels in front of a steamroller".

You cannot lose more money selling options than being long/short the equivalent amount of stock.

Definitely because everyone leverages up, why else use options in this context. I would note however that just because a phrase is used a lot doesn't make it somehow less accurate!

newwurldmn · Nov 17, 2015

Sig said:
Definitely because everyone leverages up, why else use options in this context. I would note however that just because a phrase is used a lot doesn't make it somehow less accurate!

You don't have to lever up. Most non volatility based trading strategies involve some kind of leverage and thus employee the same risks as selling options.