Buying Options w/High Implied Volatility, Not Good. But What If...

[ig0r]

Quote from commiebat:

Oh, this?

"I don't care which you trade because they're all priced fairly + risk premium for me."

There is no + risk premium for you. The options are either fairly priced or not. If you add a risk premium to the price, we can choose to sell to you at that price. If you take off a risk premium, we can choose to buy from you at that price.

Your only risk premium is the bid/ask spread, and they're not 2/8 wide anymore.

The post before that.

I would contend that risk and cost adjusted you will always do better buying equities for long term.

I have done quite a bit of research, both from MM perspective and retail perspective (costs-wise, and infrastructure, etc.) regarding this. I would suggest you do the same if you're trading more than a few hundred bucks. Anecdotal experience/evidence isn't as reliable as you would imagine.

 

[Gravestone Doji]

You guys have really strayed from the original topic of this thread. I did not intend this to be a discussion on whether retail traders should engage in trading options, or if it's appropriate to trade options from the angle of a speculator vs. hedging. Please start a new thread if you care to argue those points.

I would like to get this thread back on track. Please take note of the post I've quoted below, which is much more along the lines of what I originally intended the theme of this thread to be.

Quote from chrismontez:

From Barron's

"At Goldman Sachs, the options strategists are advising the firm's clients to fight the temptation to sell elevated implied volatility. Normally, traders reflexively enter the market to sell high volatility and buy low volatility.

Why? Because volatility is mean-reverting. When volatility gets too high, it snaps lower, and when volatility gets too low, it tends to snap higher to its mean average. This is a behavior that is almost as predictable as the sun rising and setting -- only not now -- as sometimes the mean reversion does not occur when expected."