How To Trade Volatility

I

ironchef

In the 3 1/2 years of options trading, I have only traded directionally, mostly simple buys or writes and occasionally converted them to spreads.

Quite a few of you here at ET were kind enough to help clear up some questions I had on options trading. Thanks to you I am a much better trader now.

For some situations I encountered, I thought trading volatility could be quite profitable but I just wasn't experience enough to trade volatility. The question I am asking is if I do want to trade volatility, how important is it to construct a trade that start out delta and gamma neutral? Also, what about time to expiry, short/long?

Finally, should I even try? And how many of you are actually trading volatility instead of direction?

Appreciate any comments from ET folks here.
 
Equalizer said:
Read filthy's book(s):
More...
Thanks. By the way what is filthy?

I looked at Amazon, it said the book was for:

Popular guide to options pricing and position sizing for quant traders

Anyway, I will buy the book and read.
 
ironchef said:
In the 3 1/2 years of options trading, I have only traded directionally, mostly simple buys or writes and occasionally converted them to spreads.

Quite a few of you here at ET were kind enough to help clear up some questions I had on options trading. Thanks to you I am a much better trader now.

For some situations I encountered, I thought trading volatility could be quite profitable but I just wasn't experience enough to trade volatility. The question I am asking is if I do want to trade volatility, how important is it to construct a trade that start out delta and gamma neutral? Also, what about time to expiry, short/long?

Finally, should I even try? And how many of you are actually trading volatility instead of direction?

Appreciate any comments from ET folks here.
More...

IMHO, selling high vol, relative to hv, is risky, but can be very profitable. Going long, you want low vol, relative to hv, but I think that's a crap shoot.

Synthetic long put straddles seem to come down the middle for me. You need high OI and a tight b/a. Research it, and you might come away with a different perspective on vol.

Good luck :)
 
ironchef said:
Thanks. By the way what is filthy?

I looked at Amazon, it said the book was for:

Popular guide to options pricing and position sizing for quant traders

Anyway, I will buy the book and read.
More...
"filthy" is Euan's nickname (and sometimes online alias). He was a professional options trader, so he knows what he is talking about.

He has also published a simpler, more introductory book:

www.amazon.com/Option-Trading-Volatility-Strategies-Techniques/dp/0470497106/ref=pd_sim_14_4?ie=UTF8&dpID=51AFf7pQPzL&dpSrc=sims&preST=_AC_UL480_SR318%2C480_&refRID=JCPJGX648X1GR7E05RT0

Note that a certain level of mathematical maturity is required to "get" filthy's writing. I'm not talking maths at measure theoretic probability level, but you need to feel comfortable with basic vanilla option equations.

If that sounds too hard, then you might want to read Sheldon Natenberg's book first. Having said that, filthy's first book was aimed at replacing Natenberg.

Another good one is Baird's option market making book.
 
Equalizer said:
"filthy" is Euan's nickname (and sometimes online alias). He was a professional options trader, so he knows what he is talking about.

He has also published a simpler, more introductory book:

www.amazon.com/Option-Trading-Volatility-Strategies-Techniques/dp/0470497106/ref=pd_sim_14_4?ie=UTF8&dpID=51AFf7pQPzL&dpSrc=sims&preST=_AC_UL480_SR318%2C480_&refRID=JCPJGX648X1GR7E05RT0

Note that a certain level of mathematical maturity is required to "get" filthy's writing. I'm not talking maths at measure theoretic probability level, but you need to feel comfortable with basic vanilla option equations.

If that sounds too hard, then you might want to read Sheldon Natenberg's book first. Having said that, filthy's first book was aimed at replacing Natenberg.

Another good one is Baird's option market making book.
More...
Thank you very much. I appreciate your answer. Some level of mathematics is actually fine with me just that sometimes the finance terminologies confused me, a non finance type.
 
Some ideas:

Selling delta 2 ES puts (as explained in the other thread)..I know some people hate this, but after a few weeks = guaranteed $ even if the market falls a lot. The margin requirements are surprisingly low.

Selling neutral delta 20 200-day ES strangle. After 2 weeks, unless the market is + or - more than 3%, you will be ahead due to the decay . Very high prob. of making $.

never sell calls on options less than 100 days exp.
 
You must log in or register to reply here.
Back
Top