Methodology of Volatility Trade

[ironchef]

Thanks everyone. You gave me some food for thought.

Let me think about all your comments. In particular,

The only "volatility" trades I can think of are:

1. +1, -2, +1 butterflies just before earnings - to be closed after earnings when volatility plummets.
   
2. Long straddle/strangle a few weeks before earnings - to be closed just before earnings.
3. Short straddle/strangle just before earnings - to be closed after earnings when volatility plummets.

Thank you very much for your suggestions. These are actionable. I can back test with my underlying and see if I can gain some ground with your ideas.

Thanks.

It depends what you are trading.

Are you trading volatility products such as VIX, XIV, UVXY, VXX, SVXY?
If so they are easier to trade once you have a good understanding of them. You can be quite profitable (30-40% a year) or lose quite a lot if you mess up.

The last time I tried to have a meaningful discussion I had trolls like Redneck and dratsum jump all over me so if they come back with their trolling I am done with this forum. I have a strong feeling they couldn't understand what I was teaching so his reaction was to use profanity.

No, I only traded equity options, mostly options on stocks I was holding.

I have been watching VIX and am quite puzzled with their movements. Let me paper trade VIX and see where it leads me.

Regards to all,

 

[ironchef]

IMHO: "consistently profitable" does not exist. Consider metrics which more precisely characterize what "YOU" really are looking far, without over constraining your search. Expectancy, max drawdown, minimum annual average return or some quantifiable but reasonable set of metrics.
The "low hanging fruit" has either been taken, or is not fit for consumption.
You may wish to learn a bit more about some more complex trades before writing off this area of volatility trading. These require some skill and effort to understand, but may have characteristics (expectancy, success rate) that may be attractive to you. John Locke teaches an "M3" trade that has a substantial following, that may provide some insight to what may be possible. (I have no first hand knowledge of this trading system) There are a number of trades which are less complex, that may suit your fancy as well. -- I can send you a link, if you are interested, to a group which trades and develops some of these more complex trades. Note: These are typically intermediate term trades, not the weekly or monthly duration trades that are more common.

I Googled John Locke's M3 system and will take a look. Thanks.

I need to learn some basics first before I can join a group.

Regards,

 

[CBC]

Oh gosh.....

I can give advice on other stock options like Auz and Euro options.

Thing is US options are severly affected by IV... I mean seriously.

Here in Auz the options happily follow the underlying instrument. I actually always opened my straddles first thing in the morning even if the market was volatile because it didn't make a difference. Make a small pile of cash doing this....

Then I saw greener pasture in 'merica. I went to my local library and studied for a week deciding what stock to straddle. In the end I went with BAC. 1 month out. 10K trade.


I entered roughly 1/2 hour into the session. Now normally I would check my straddles via e-mail each night and they would be roughly break even +- mbey 2%. Then I checked my BAC straddle after the first session...... DOWN 20%!!! WHAT!! I'd never seen that ever B4. I ended up losing my hard-earned 10K on the trade. My poor ego BTW. So I have now looked into IV and how it works.

If you don't want to deal with IV then trade elsewhere. Mbey top 15 stocks in AUZ. They aren't affected by IV at all. They follow the underlying very closly. I must have traded 15 straddles or so and there was none of this IV stuff. I never even knew about it actually after my first 6 months trading straddles. Had I started in US I would have had to learn it. And quick 2!!

IMO USA is a sellers market. Thats just how I view it. Some people would think otherwise.