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best ways to go long/short volatility...
- Thread starter cdcaveman
- Start date
Quote from cdcaveman:
ummm... i don't think there is an absolute best long volatility structure... i do think short flys with short wings isn't a bad choice for single stocks.. although i haven't traded any yet...
whats your way of going long volatility in an index?
If you want to be long vol, then you should be willing to hit a homerun.
Why would you cap your upside with a teenie option?
Quote from Martinghoul:
Buy a straddle and delta-hedge...
I think it depends on the maturity of the straddle; a short-term to me looks like a gamma play, where on the longer-term (3rd further out options) becomes a real volatility play. Also, commissions and continuosly re-hedging schemes will defenitely play a crucial role.
I might like a synthetic straddle with 4th further out Put options, though.
Quote from newwurldmn:
If you are going to be long volatility why would you cap your gains with a butterfly?
vol and delta are definitely correlated. Especially in index where gap ups are less common.
I am sorry, what gains should I cap? Those generated by the underlying move? I don't want to capitalize on that, it is just not my goal!
However, I understand I should analyze more data, not just a month of options settlement prices.
Could anyone please explain to me in plain english why the following long atm dec12 butterfly purchased by the end of july for a 21-point debit, took that path?
I assume long butterfly = short volatility while I get rid of underlying directional risk.
Thanks
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Quote from marameo:
I am sorry, what gains should I cap? Those generated by the underlying move? I don't want to capitalize on that, it is just not my goal!
However, I understand I should analyze more data, not just a month of options settlement prices.
Could anyone please explain to me in plain english why the following long atm dec12 butterfly purchased by the end of july for a 21-point debit, took that path?
I assume long butterfly = short volatility while I get rid of underlying directional risk.
Thanks
You always have direction risk..... all your expressing by going long a fly is that the direction risk is lower then the options you sold are implying
Quote from cdcaveman:
You always have direction risk..... all your expressing by going long a fly is that the direction risk is lower then the options you sold are implying
That's my point!
Also, I'd like to point out that short volatility positions such as the short straddle, have the potential for large losses should the underlying price move sharply in either direction. So, to limit these potential losses I may like to cap the maximum downside risk which is the debt I pay to initiate the long butterfly.
I am more interested in daily mark-to-market value of the butterfly.
Now, what could drive my butterfly to zero?
(see I purchased the butterfly by the end of july for 21 points. 1 month later it was still trading at 21 despite the underlying move)