implied volatility figure is annaulized with a probablity of one standard deviation because the option pricing model assumes normal distribution.
Long dated buying
- Thread starter .sigma
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implied volatility figure is annaulized with a probablity of one standard deviation because the option pricing model assumes normal distribution.
That's nice, but how it's REPORTED has nothing to do with how it's CALCULATED.
Your claim was that it's CALCULATED "one year ahead", which is wrong. Try reading and understanding instead of arguing next time.
If you have conviction, why spread?
Regardless of how much conviction you have, why would you pay for a bet out to infinity or a drop to zero?
I wonder if it would make any difference, in theory at least. You would pay indeed for the unlimited upside or drop to zero, but also these ‘tails’ are - in theory - priced accordingly, and perhaps when you are named Taleb even underpriced from your point of view. Spreads/boxes do help for a smoother return distribution, I would say/think
If you can - better than random - asses the price touch at expiration, that would be interesting too
The fact that a rise to infinity is priced "fairly" is irrelevant; it's not a bet I'm interested in making.
SPY may rise $20 in the next 30 days. It will not, in any sensible conception of the market, rise by $100 during that time. Why would I pay for a chance that it "might", and why would I want to use up that much more of my buying power for something that can't happen (or, in the case of shorts, throw away that much more margin)?
Also: why would I want to put up that much higher of a barrier to making a profit? If a spread costs me 1/2 of the price of the single, I get into profit 2x faster if I'm right on the direction.
Having said all that: I don't do spreads all that often.
However, I do trade a fair number of flies these days... and they have taught me the value of wings.I don't think you can get a 10-20:1 payoff with a spread, can you?
I have not been able to profit from flies, no matter how hard I tried.Having said all that: I don't do spreads all that often.
If you go far out of the money, unlikely but yes.
Even easier with a far otm fly, still spreads stacked together.
I am not the expert but I would guess that with the same delta traded, spreads should keep the position more neutral with the other greeks (vega, gamma...) vs the single leg. And maybe even rate?
The fact that a rise to infinity is priced "fairly" is irrelevant; it's not a bet I'm interested in making.
SPY may rise $20 in the next 30 days. It will not, in any sensible conception of the market, rise by $100 during that time. Why would I pay for a chance that it "might", and why would I want to use up that much more of my buying power for something that can't happen (or, in the case of shorts, throw away that much more margin)?
Also: why would I want to put up that much higher of a barrier to making a profit? If a spread costs me 1/2 of the price of the single, I get into profit 2x faster if I'm right on the direction.
Having said all that: I don't do spreads all that often.
Because it is 'easier' (lol) to 'forecast' a direction than a box (one variable less)?
The fact that a rise to infinity is priced "fairly" is irrelevant; it's not a bet I'm interested in making.
SPY may rise $20 in the next 30 days. It will not, in any sensible conception of the market, rise by $100 during that time. Why would I pay for a chance that it "might", and why would I want to use up that much more of my buying power for something that can't happen (or, in the case of shorts, throw away that much more margin)?
Also: why would I want to put up that much higher of a barrier to making a profit? If a spread costs me 1/2 of the price of the single, I get into profit 2x faster if I'm right on the direction.
Having said all that: I don't do spreads all that often.
legit, I understand (not that everything I dont understand is not legit from my view
)I don't think that relationship is lineair, but get your point. That was what I meant with smoothing the returns distribution