Buying options and avoiding crush during times of high vol

taowave said:
In systems with a dumbell distribution,I have found the same thing you do.The trick is to find a syatem where you are either dead dead wrong or really right:)

Whats interesting is when I first read your criteria of not paying more than 10% of spot price over intrinsic for a 90%/spot 2 month option,I thought that was really rich. As you know,that is apx equivalant to paying 10% of spot for the 90% spot 2 month put.

Great post!!!
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1. Elaborate please if you dont mind,


2. i like what you posted you seem to be on it from a statistical side, while i am on it from a math/numbers side,, the 10 percent was an example in this case, there is no set criteria, but the comparison would be one stock to another or a basket of lets 6 six stocks, so that your not paying overly a lot in comparison with the rest..

3. remind also please what dumbbell distribution systems exactly refer to,, its been a while
 
The good news is that with SPY implied volatility about 37% and realized (historical/statistical) vol moving at 55% you don't have to be to exactly right to profit from scalping gamma.
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I like to find verticals to buy in these cases where they make the most sense from a term structure and put-call slope perspective. For example, I use forward vol relationships to determine what expiry to buy.
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For example, since the forward volatility outlier for SPY is selling the 30/20-day time spread (its priced about the same vol for each whereas other ETFs are in greater contango ie the forward < 1) and the put-call slope percentile is low relative to other ETFs, I would be a buyer of 20 day call spreads (buying the lower strike selling higher strike). I would sell stock against these call spreads approximately delta neutral. As the stock moves around the delta will change and you can buy and sell stock at hopefully a better scalping profit than decay.
 
ironchef said:
Sometimes, like mid March, potential underlying move trumped sky high vol.
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If you are long realized vol you are usually long implied vol. So you have exposure to "vol crush". Which is what the OP was concerned about
 
TheBigShort said:
If you are long realized vol you are usually long implied vol. So you have exposure to "vol crush". Which is what the OP was concerned about
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I am not that sophisticated, I focus on the underlying and what I paid for my options, (don't look at greeks). I don't know how to calculate realized vol vs implied vol and how to trade vol.

As an example, if I bought FB Apr ATM option when underlying was @ $140 (around mid March), when the option expires, only the underlying matters. So do I have to worry about vol crush?

Perhaps, they are all related but I don't understand the relationship.
 
help help... anyone able to give me some pointers on options... i keep reading the education stuff and still have questions... i'm sure the second it makes sense it will be all clear.
 
simple answer is to trade directionally, ideally To play breakouts, so Vol will Compress and then have a target and get out when you reach it. You’re not Soros, don’t get cute.
 
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