How hard will I get crushed by this volatility crush?

[OptionsOptionsOptions]

Hey, I've only scanned this playbook, but if I (*rarely*) have a owned short-timer, and want to lock in/insure production out of it, I'll sell something sweet at a distance that gives me some fair premium in the pocket -- a'la, turning my owned single into a vertical.

With such short time (days??), it may not be worth it, but it's a thought, and y'all sound like you're in a hurry.

I understood his comment.

What is your interpretation of his comment?

 

[Robert Morse]

What is your interpretation of his comment?

He prefers not to trade short dated options.

 

[Kim Klaiman]

Hi, Im still new to trading and have a question regarding implied volatility.
I bought a 220 OCT NFLX call option a couple of days ago for the upcoming earnings. I already made a decent profit on them ~30%. Now my question is if 2moro the stock opens at 220 what will my option be worth after volatility crush. How can I calculate this myself, my broker does not provide the tools for that. Thanks

This is a wrong question to ask.

Novice traders ask "how much I can earn if I'm right?"
Professionals ask "How much I can lose if I'm wrong?"

The trick in options trading is not to lose much even when you are wrong.
Buying cheap OTM options before earnings is a pure gambling as we can see now. Even if the stock increased 10% after earnings (not very likely, considering how quickly and hard it went up before earnings), the 220 calls would be breakeven at best.

 

[sle]

So that option opened at 62 vol and has been around 50 handle the whole day. I assume the op had delta against it?

 

[Robert Morse]

So that option opened at 62 vol and has been around 50 handle the whole day. I assume the op had delta against it?

You are looking that the Ivol of an option that closed at 0.08 with 3 trading days left. The ATM options are 32/33 or less out to Jan 2018. Lower than I expected.

 

[truetype]

You are looking that the Ivol of an option that closed at 0.08 with 3 trading days left.

Exactly. Tiny options near expiry usually trade at "high" vol because only morons are willing to sell them.

 

[Robert Morse]

Exactly. Tiny options near expiry usually trade at "high" vol because only morons are willing to sell them.

I was thinking the same about buying them! I don't get any value out of looking at the Ivol of a short dated option under $0.15, IMO. Just a number.

 

[sle]

You are looking that the Ivol of an option that closed at 0.08 with 3 trading days left. The ATM options are 32/33 or less out to Jan 2018. Lower than I expected.

Wasn’t that what I was saying? the fact that it’s a far wing will support the price and this make the IV higher, right?

PS. Actually, if you think of the type of gap required to get to these low delta short dated options, vol that’s “implied” is not that unreasonable

 

[JackRab]

PS. Actually, if you think of the type of gap required to get to these low delta short dated options, vol that’s “implied” is not that unreasonable

Whatdayameanbythat?

You mean tinies will always have relatively high IV especially for near expiry?

32 ATM IV... that's exactly what the fwd vol was... I thought it would be a bit higher as well. I guess no move does that

 

[sle]

Whatdayameanbythat?

You mean tinies will always have relatively high IV especially for near expiry?

Someone said something like “it’s high, but it’s meaningless” - I was just saying that if there is a chance of it getting to the strike, what you realize along the way will be pretty high. When you are forced to refit that normal distribution so the fourth moment is expressed via second one, you can get some extreme values