I agree that there is an 'unknown' component hence the long-term relationship. But there's no disputing that IV > HV or RV in the long-term. In the end, that's all that matters to me.
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Karen the Supertrader - TastyTrade Hybrid Experiment
- Thread starter Sweet Bobby
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I agree that there is an 'unknown' component hence the long-term relationship. But there's no disputing that IV > HV or RV in the long-term. In the end, that's all that matters to me.
I agree that there is an 'unknown' component hence the long-term relationship. But there's no disputing that IV > HV or RV in the long-term. In the end, that's all that matters to me.
But that doesn't mean anything. LOL.
It matters when I get paid based on a higher IV as compared to the risk I realize.
I don't think you have analyzed the true source of the p&l. But it doesn't matter. It's your money and I'm beating a dead horse here. I wish it were that easy to just sell risk premia and enjoy the generosity of the market.
Not instantaneously.
HV contains realized risk. IV contains implied future risk. What other risk premium is there? Please educate me (not meant to be sarcastic).
The risk premium is due to the fact that the market is net risk averse. They would rather eat a 1-2 vol loss than earn a 1-2 vol gain and risk blowing up.
If the implied vol is 12, the market is probably forecasting 10. That's why implieds are always > realized in "normal market conditions"
I don't know if it's gonna kill you.
I try to manage my delta/gamma to break even in a gap down of 100 on the ES (vega adjusted). If it blows past 100, so be it--an insurance company has to pay out once in a while. The risk of gapping to the upside is another story which would benefit my buy-and-hold-forever equity portfolio.
You will probably lose if the market rallies.
That's the problem with short vol. you can't escape the gamma curve when volatility picks up. You can only shift it around.
Mind you, I pretty much only sell vol, and I spend most of my trading hours focused on all the bad things that can happen to me.
The risk premium is due to the fact that the market is net risk averse. They would rather eat a 1-2 vol loss than earn a 1-2 vol gain and risk blowing up.
If the implied vol is 12, the market is probably forecasting 10. That's why implieds are always > realized in "normal market conditions"
I would agree 100% as I mention risk aversion a few posts up.
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