Option volatility

athlonmank8 · Nov 23, 2009

I'm making the assumption that most option traders disregard volatility.

When trading front month options I see no bonus in buying low volatility. Even possibly 2 months out. In fact it looks like more of a burden just like fading a trend. It's almost as if you're making sure the "volatility" odds are stacked against you.

Is all this talk of "buy low volatility" a bunch of nonsense?

mushinseeker · Nov 23, 2009

What makes you think most option traders ignore vol?

KINGOFSHORTS · Nov 23, 2009

Quote from MushinSeeker:

What makes you think most option traders ignore vol?

I suspect he means retail folks who go long options as a way to take a leveraged directional bet.

heiasafari · Nov 23, 2009

Quote from KINGOFSHORTS:

I suspect he means retail folks who go long options as a way to take a leveraged directional bet.

Then he assumes wrong, these kind of traders represent no serious volume whatsoever

athlonmank8 · Nov 23, 2009

Quote from heiasafari:

Then he assumes wrong, these kind of traders represent no serious volume whatsoever

ok so do u have an opinion? because that was my point actually most retail doesnt care

athlonmank8 · Nov 24, 2009

Quote from KINGOFSHORTS:

I suspect he means retail folks who go long options as a way to take a leveraged directional bet.

Yeah im talking about them. They're not uncommon.

Thanks.

Regardless of who the heck's buying the things though what's the advantage of buying cheap IV when the trend is DOWN. Just because IV is low doesn't mean it can't get any lower.

The morons who tout it are dead wrong. Anyone have any input on this.

heiasafari · Nov 24, 2009

Quote from athlonmank8:

ok so do u have an opinion? because that was my point actually most retail doesnt care

Well what I am saying is that these retail traders do not weild alot of "buying power" because if they do not take vol into account they are most likely just nibbling at options.

Other than that, of course it is dumb to blindly buy vol because it is low. Would you buy every stock that hits its 52 week low? I sure hope not... Options are nice because you can bet either on direction or on vol or a combination of both but you need to have your mind made up on either vol or direction.

spindr0 · Nov 24, 2009

Quote from athlonmank8:

Is all this talk of "buy low volatility" a bunch of nonsense?

It makes as much sense as the statement: Sell high volatility"

Regardless of who the heck's buying the things though what's the advantage of buying cheap IV when the trend is DOWN. Just because IV is low doesn't mean it can't get any lower.

It may be high of the new range (going forward).

Where it makes sense to me is if you're selling high and buying low such as horizontal/diagonal plays for earnings/news announcements.

athlonmank8 · Nov 24, 2009

Ok, that answers my question

.

Thanks.

acen1975 · Nov 25, 2009

Quote from spindr0:

spind,a love to desagree with u(as usual

)

to buy low IV is very different,that to sell high IV......
if we compare the last 2 years,VIX was between 20 and 80........right now is at 20......
the lowest VIX levels,ever recorded are at 9.
so,if now u buy IV ,it cannot drop with more than 50%(twice),if it goes up,can go to 80,even more.....

there a strange correlation in equity markets,which i personally find very stupid and everybody can take advantage out of it.
as SPX moves higher,IV goes lower,with is a paradox for me.....as higher the market goes,as more chance there is for correction,and the IV should go higher........but its the opposite .......
so if the market is down and iv is high,if option trader wants to bet for uptrend,near month OTM call broken wing butterflies are the best solution,and when the market is too high,and looking for a bet on correction,OTM put calendars are perfect.......thats how nowdays trader can turn this correlation move vs IV into an edge.
nice play on the absurd,that the market participants are allowing to happened