Ever a good time to sell option premium on S&P 500?

traider said:
Any hints on how to go about creating a model that can forecast realized volatility?
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Well, that's a big part of the secret sauce for almost any volatility trading strategy so I can't really give any hints. In any case, it would depend on the asset - what would work for FX options would not work for bonds etc.
 
I programmed Black Scholes Merton into my (admittedly ancient) microwave oven, and put in some freshly-kneaded Irish loaf dough, and I can say without a doubt, that the results were miserable.

Therefore, BSM will not work to change my flat tire, either. WTF?

Who needs such junk? Isn't it all just a farce designed to separate the ignorant masses from their monies?

(Snark-mode now disengaged.)

sle said:
In the modern liquid vol market, an options model serves as a interpolation/comparison tool more than anything else. Black-Scholes framework, with some minor tweaks fits that purpose well enough. It's also a reasonable basic model for risk management, unless you are dealing with exotic derivatives of some sort.
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Breathe deep; hold it for a second; let it out slowly........
There now!
 
Somebody above mentioned that the Vix is mean reverting and I mentioned trading the range. Here is a simply system, drafted in Python, which buys Vix Puts when the Vix is over 40 and buys Vix Calls when the Vix is below a certain level. CAGR 20%, Max DD 27%. Scroll down for charts of the equity curve. Download the code from my Gist

 
sle said:
I just wish people understand the product they are trading better before saying things like that. In the modern liquid vol market, an options model serves as a interpolation/comparison tool more than anything else. Black-Scholes framework, with some minor tweaks fits that purpose well enough. It's also a reasonable basic model for risk management, unless you are dealing with exotic derivatives of some sort.

Back to the topic, there is a question of "when is a good time to sell options?" and then there is a question of "how do I prevent a blowup?". The answer to the first question is that you have one or several ways of forecasting that realized volatility would underperform the implied one. The second question, however, should be reformulated as "how much of your expected gains are you willing to spend to protect yourself from a disaster?" and "what exactly is a disaster scenario?".
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Hi sle,

Thanks for joining in. Isn't the distance of the strike to market price very material in deciding whether or not to sell options? If I can obtain a certain premium by selling options 30% out of the money without much leverage than I could during a different period (where SPY spot prices are less volatile) requiring more leverage and/or selling closer to the money to obtain the same premium, wouldn't this kind of comparison of different vol. periods in the underlying help me in determining when to sell?

Best,
S&N
 
short&naked said:
Hi sle,

Thanks for joining in. Isn't the distance of the strike to market price very material in deciding whether or not to sell options? If I can obtain a certain premium by selling options 30% out of the money without much leverage than I could during a different period (where SPY spot prices are less volatile) requiring more leverage and/or selling closer to the money to obtain the same premium, wouldn't this kind of comparison of different vol. periods in the underlying help me in determining when to sell?

Best,
S&N
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risk is different but yes..there is huge risk right now..u could have a flash crash
 
sle said:
Back to the topic, there is a question of "when is a good time to sell options?" and then there is a question of "how do I prevent a blowup?". The answer to the first question is that you have one or several ways of forecasting that realized volatility would underperform the implied one. The second question, however, should be reformulated as "how much of your expected gains are you willing to spend to protect yourself from a disaster?" and "what exactly is a disaster scenario?".
More...

First, sle and I have met before in an Options selling thread and he knows much more than I do in the technical knowledge area. For me 2016 and 2017 was a perfect time to sell options in SPX. I did not look at any volatility measurments as that is bulit into the MM premiums and I found the best sucess on expriations that had greater premium and thus greater vol.

As far as "how do I prevent a blowup"? You don't! You plan for it and expect it. I used OTM Iron Condors and just let them expire. Bob from Lightspeed says no one lets them expire but I found that to be the best because it is a cash settlement and there is no reason to close them early as it saves on commissions. You either get max profit, partial profit, a partial loss, or a max loss.

It worked great and I thought I had a cash cow that I could run forever. But Jan and Feb, 2018 it seemed the MM could not get enough premium into the options to counter the volatility so I had an epidemic of max losses so I quit doing it and have not looked at it since. I plan to go back on the simulator and test out what would have happended in the last 10 months but just looking at what the market has done this year I do not thing the results will be pretty.
 
Sell option premium, especially the overly expensive OTM puts, when the VIX is 25+ and buy option premium when the ViX is flatlining between 10 and 12. Pretty simple.
 
There are options strategies for a very good reason- so we don't get blown up and become the dumb money. People need to 'copulate elsewhere' if their only approach is to sell premium. They are a frikkin nuisance until they blow up. Then they bleat about how the market is rigged. It's a market- get a dictionary if you don't know what it is. Most of the parties concerned are idiots, and you cannot model idiocy. Look under the hood of any managed fund and you will see a combination of common sense(5%) and downright bewilderment(90%) plus 5% of pure luck. Learn 30+ strategies, don't expect the market to parent you.
 
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