Buying puts vs buying calls

T

Tom1am

Im thinkin' buying puts is a better deal than buying calls because volatility usually increases during a crash, and stocks take a slow ride up and a hard drop down.

Each time SKF crashed (last fall and early winter) the value of the puts shot way up, then dropped as that etf neared the bottom. Seems, all other things being equal, buying puts would be better than buying calls.

Is there any way to estimate the volatility change when, you project XYZ to drop 20% in 45 days?

Any thoughts?
 
I must be missing something. Buying is directional. Would you buy calls in a declining market because the volatility of puts is rising faster?

Estimating future volatility is guesswork. You can look at previous events but past performance is no guarantee of ....
 
Quote from Tom1am:

Im thinkin' buying puts is a better deal than buying calls because volatility usually increases during a crash, and stocks take a slow ride up and a hard drop down.

Each time SKF crashed (last fall and early winter) the value of the puts shot way up, then dropped as that etf neared the bottom. Seems, all other things being equal, buying puts would be better than buying calls.

Is there any way to estimate the volatility change when, you project XYZ to drop 20% in 45 days?

Any thoughts?
More...

You're right - for the reason you mentioned and a few others, OTM index puts are more valuable than equally OTM calls.

That hasn't escaped the notice of the market, which prices OTM puts higher than equidistant OTM calls. At this moment, with the SPY at 107.10, the 100 puts are trading at 26.00% while the 114 calls are trading at 19.4%.
 
Agree with last post. Always factor in time to expiration, your own time frame, and volitility of the underlying.

Pick a couple your thinking of moving in on and watch the price/premium/time relationship along with volume. After a while you pick up a much better understanding of how volitility changes.

Hope this helps. Good luck to you!
 
If you want to pursue this beyond the simple skew effects, you may want to look at various local volatility models, such as the 'sticky' ones of Derman's.
 
spin

I should have said buying puts on stocks I estimate to decline
vs
buy calls on stocks I estimate to rise.

I always get direction right, except when I don't.

The reason I have not gone long many calls (vs stocks) is the volatility card. If I can get volatility and direction right, I want to buy puts instead of having short stock positions.

I am starting a ledger to track this

Thanks for the inputs.
 
Quote from Martinghoul:

If you want to pursue this beyond the simple skew effects, you may want to look at various local volatility models, such as the 'sticky' ones of Derman's.
More...

Is there a link??
 
If your concerned about volatility then sell calls instead of buying puts. Thats of course if where talking about a bearish market or opinion on the market.
 
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