yes. It’s a form of risk premium and not free money.
It’s compensation for taking on unhedgeable risks.
Is trading Implied Vol, the real edge here? And anything directional has no edge?
- Thread starter Tall Mike
- Start date
yes. It’s a form of risk premium and not free money.
It’s compensation for taking on unhedgeable risks.
I don't see (in relation to IV trading) what disadvantages there are (nowadays) "at the retail level".
If you read some old topics here from Dest you will learn a lot (about IV trading)!
My old threads with trades generally suck unless they are arb-positions. I was generally long spot into some target -> synthetic straddle -> fly conversion. If you earn over the day1 straddle mark then the hidden gigi is the opportunity gain on stickiness in the wing purchase. So there is some value add, but you have to be somethwat successful trading direction. The alternative is short the straddle with delta position but your initial deltas limit your opp as you limited to your initial deltas. IOW it makes no sense to short a 99-100D straddle/combo.
The problem with it is that you’re in shares at inception. The completed (call) fly is on at a credit, but the share gain isn’t an edge; it’s artifact of a successful share buy.
What risks are unhedgeable?
gap events mostly.
What I meant was it's all that I was willing to show. In the "dest everything journal" showed that most of my trades were in single name positions (L/S shares) with an eventual option-add or cover. Too difficult to convey here due to frequency.
What about selling options spreads? i.e. selling VXX Call Spreads. You can hedge your risk there. Or at least define it to what you are comfortable with.