Is buying options a mugs game?

ironchef said:
I am thinking aloud so may not make sense.

1. If there is no skew, and I use B-S, the stock price distribution is lognormal. So, skew, to me, represents non lognormal distribution of stock price. I could, from a skew vol, assumed constant T, rate, dividend, create a stock distribution that has fat tails on both tails if skew is a smile around ATM. It then represent the market's best estimate of what the real world should behave? What do you mean could not be arbitraged?

2.) Yes, but they are correlated so must behave according to a set of relationships? If the market priced it different from that, can it be arbitraged?

By the way, what exactly is your definition of arbitrage? I don't know exactly what it is, I pick the word out of books deriving B-S.
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1) You're stating that (dominant) strike volatility should increase as moneyness decreases? I don't follow.

2) There are relationships (sticky delta/strike (smile); skew modality) but PC-parity only applies to the strike combination (put and call at n-strike). Suppose the ATM vol is 12%; (25) delta strike is 15%; 25 delta strike is 10%. How would you structure the transactions to arrive at a riskless gain by selling the 15% vol and buying the 10% vol?

Can we agree on the fact that 15% vol is greater than 12 or 10? Ignore dynamic hedging in a frictionless environment.

Consider a box arbitrage. You buy the 15% vol synthetic shares at x, shorting the 14% vol synthetic shares at y. The voldiff does not impact the arbitrage. A box has no vega, only rho.

Suppose that the n-strike call trades at 12.5% vol when the can buy the put at 12.1% vol. Parity is lost due to microstructure and you can sell the 12.5% call, buy the 12.1% put and buy the shares. PC-parity is violated and the arbitrage condition would result in the number of conversions necessary to trade vols to equilibrium.

Again, ATM vol is 12 and the (25) delta strike is trading at 15%. How would you arbitrage the strike trading at 15% volatility providing for a flat vol-surface?

Same for the 25 delta strike at 10% vol. How can you reconcile a 10% vol above the market and a 15% vol below? A non lognormal distribution? Why isn't the surface symmetrical? If you think it is, why does the ATM vol stick to 12% locally?
 
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destriero said:
1) You're stating that (dominant) strike volatility should increase as moneyness decreases? I don't follow.
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Didn't say should, said for example:

upload_2019-5-5_21-46-30.png


I trade CELG calls:

upload_2019-5-5_22-2-56.png


IV increased as moneyness (strike) decreased?
 
your bros? gauge? MANIPULATE (illegal last time I checked)? "the feast dinner"? No, I don't think you have talked about that. Else I would have been confused in the first place. What the heck are you talking about other than rambling? Yes, free lunches do exist, very rarely and hardly ever found by beginners.

Re your last recommendation, sure, put your money where your mouth is and stop trading, put your money in an investment account and enjoy the "updrift" and I will consider whether to follow or not.

Everyone who wants to survive in this game has to find his/her little edge. Plain and simple, to the point, no mumbo-jumbo, period.

dozu888 said:
anyone on ET actually talking about buy and hold lol...

just look at all the threads... other than the chit chats, vast majority are about the free lunch that doesn't exist - where is that illusive 'edge' that "I" can find, but all the millions of other traders out there have not found yet lol.

yet very few are talking about approaching the market like my pro boys do, how to gauge and manipulate the market and take advantage... the 'feast dinner' I have been talking about.

buy and hold has been doing well, but I wouldn't call it free lunch, but it's just semantics... every investor should benefit from the index upward drift... it's a built in benefit when you subject yourself to the volatility.
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you are the only one here who throws around with semantics. Are you blind? Everyone in this thread noticed it but you.

dozu888 said:
what's the point... you know what I meant and I already explained what I meant... unbelievable.. how about producing something constructive and creative for a change, instead of wasting time on semantics.
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