Options Trading Strategy

[MTE]

Quote from bln:

If I where about to start trading options again I would look into a strategy to exploit volatility dislocations in various stocks and instruments. Kind of reversal to the mean strategy, a bet that IV will normalize.

Sometimes then some major event happens like surprise earnings report the stock make a big move and volatility shots through the roof serval standard deviations. Like then the VIX was trading at 80 last year. Thats a no brainer trade to take, like 95% probability on your side.

The volatility is mean reverting, but there is no time line to it, it can take a long time to revert.

Volatility usually runs up prior to earnings announcements and then gets crushed after the announcement. The problem is that the announcement can be associated with a big move in price so it's not as easy to profit from the drop in volatility as you may think.

Also VIX at 80 looks like a no brainer now, but at the time there was no way of knowing where the top was. Similarly it was a no brainer buying the stocks at the March lows...

 

[heech]

Right, if VIX at 80 was a no-brainer... what was VIX at 50? And if you had gone short VIX at 50, would you have been able to hang-on through the draw-down all the way at 80?