NFLX volatility and trading strategy

xandman

xandman

Every 3 months NFLX's Volatility chart shows a wave pattern or mesa hilltops. However, the stock chart follows a more regular upward trend, not counting that Icahn announcement of course.


Given this history, can I buy call butterflies before the anticipated pop in IV and then sell Iron Condors after the pop?


Is that naive, simplistic, or just flat out wrong. Please advise.
 
Quote from xandman:

Every 3 months NFLX's Volatility chart shows a wave pattern or mesa hilltops. However, the stock chart follows a more regular upward trend, not counting that Icahn announcement of course.


Given this history, can I buy call butterflies before the anticipated pop in IV and then sell Iron Condors after the pop?


Is that naive, simplistic, or just flat out wrong. Please advise.
More...
you should sell butterfly when you expect the iv to rise, same thing for ic
selling a fly means you are buying the middle strike
 
Thanks for the correction.

Yes. I bought the middle and sold the wings on the butterfly.

As for the IC, I definitely want to sell the more expensive middle strikes, expecting minimal movement on the underlying.

So, do you think that strategy is appropriate if you expect that pattern to repeat.

How can it happen so much without pressure from people taking advantage of that pattern.
 
You can't treat volatility the same way you treat stocks.

Volatility is a swap (so are stocks really but with rates where they are it's not relevant). You pay implied and receive realized.

Vols could be going up because of earnings. If you aren't receiving enough realized volatility then you will make on implieds but lose on realized volatility. You are betting that the increase in implieds will offset the loss on realized.

Sometimes it does; othertimes it doesn't; most of the time it's a push.
 
Quote from newwurldmn:

You can't treat volatility the same way you treat stocks.

Volatility is a swap (so are stocks really but with rates where they are it's not relevant). You pay implied and receive realized.

Vols could be going up because of earnings. If you aren't receiving enough realized volatility then you will make on implieds but lose on realized volatility. You are betting that the increase in implieds will offset the loss on realized.

Sometimes it does; othertimes it doesn't; most of the time it's a push.
More...
He is playing just the iv, by doing so he ought to buy the at the money and reduce the cost of the position by selling the otm option. Implied volatility trading is pure speculation in my view.Essentially iv is what the participants think for the probability of a possible outcome(strike price). It moves regardless of where historical vol is.Imo the op should speculate on iv for short periods, say a week.
 
You can't just trade the implieds. You have to take an opposing view on realized (or another vol based risk factor: term structure, skew, etc)
 
Quote from newwurldmn:

You can't just trade the implieds. You have to take an opposing view on realized (or another vol based risk factor: term structure, skew, etc)
More...
yes if you hold the option till expiration...
 
Quote from Georgi90:

yes if you hold the option till expiration...
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Even before expiration.

You pay theta and that theta represents the realized vol expectation. Everyday you lose vega: similarly this represents the realized vol opportunity that is shrinking.
 
A rise in the IV takes me back to even from the slow bleed of theta.

The risk graph does have an upward sloping "V" regardless of direction.

My fear is that the IVs drop further and then the stock stays put. Then , I take a bath.


I really need to develop my ability to trade this. Too many credit spreads is turning my portfolio into a a giant iron condor. Not the place I want to be in this low vol environment.

No way am i gonna lean negative net delta in this crazy market. Though, I made 30% last year doing that, I really didn't know what I was doing. Most of the profit came in 2 months.
 
Quote from xandman:

A rise in the IV takes me back to even from the slow bleed of theta.

The risk graph does have an upward sloping "V" regardless of direction.

My fear is that the IVs drop further and then the stock stays put. Then , I take a bath.


I really need to develop my ability to trade this. Too many credit spreads is turning my portfolio into a a giant iron condor. Not the place I want to be in this low vol environment.

No way am i gonna lean negative net delta in this crazy market. Though, I made 30% last year doing that, I really didn't know what I was doing. Most of the profit came in 2 months.
More...


Its good your honest with yourself..
 
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