- Question about Volatility when selling premium?

riskarb · Jan 31, 2004

Quote from TempusFugit:

Well, that's me. I need the income and can't stand a negative expectation.

However, I am acronym-challenged.

Riskarb: what do you mean by LR, UR, URO and FI?

Sorry:

LR - Limited Risk
UR, URO - Unlimited Risk, Option
FI - Fixed Income

johnk49 · Jan 31, 2004

Mav,riskarb,Could any of you guys explain the ins and out of this spread.Paul Forchione mentions it on his site as one of his favorite strategies but he does not go into detail.I've looked at many option sites but can't seem to find anything in detail.Thanks.

murray t turtle · Jan 31, 2004

Quote from mmmarkus:

Have an exit plan ahead of time, for when things go bad. This will help avoid feeling anxious and acting irrationally. This will remove emotion and that feeling of panic. Do not get overexposed. At some stage things will go bad when you least expect it.

Selling OTM premium is a viable strategy, but very different from trading stocks. Allocate correctly and have appropriate stops. I believe a 10-25% annual return is achievable and realistic. Those shooting for a double have their expectations set too high imo.

======
Dman 34 mules;
Selling OTM premium may be a viable strategy for index options???

For sure I wouldnt make buying deep , cheap OTM index calls as a major strategy, since I am interested in a profit as a buyer ..

Many option buyers however achieve thier goal of thrills being more important than profits.

I put it simple;
if you like it more complex, study law of thermodynamics, its creative help.

riskarb · Jan 31, 2004

Quote from johnk49:

Mav,riskarb,Could any of you guys explain the ins and out of this spread.Paul Forchione mentions it on his site as one of his favorite strategies but he does not go into detail.I've looked at many option sites but can't seem to find anything in detail.Thanks.

It's a butterfly using split-strikes in which you're short(long) the front(back) month. Here's a link:

http://www.liffe.com/products/strategies/recognised/short-iron-condor.htm

That's the payoff of a vertical condor.

riskarb.

riskarb · Jan 31, 2004

Quote from riskarb:

It's a butterfly using split-strikes in which you're short(long) the front(back) month. Here's a link:

http://www.liffe.com/products/strategies/recognized/short-iron-condor.htm

That's the payoff of a vertical condor.

riskarb.

That was confusing, let me re-phrase:

The calendar-condor is usually done as an iron, long(short) the body, short(long) the wings. It's simply a butterfly in which the "body" strikes are not a single strike, but separated by one strike or more.

A "short the body" condor is equivalent to a long call or put condor, long theta, short gamma at delta neutrality.

A "long the body" condor is equiv. to a short call or put condor, short theta, long gamma.

riskarb.

riskarb · Jan 31, 2004

Quote from riskarb:

That was confusing, let me re-phrase:

The calendar-condor is usually done as an iron, long(short) the body, short(long) the wings. It's simply a butterfly in which the "body" strikes are not a single strike, but separated by one strike or more.

A "short the body" condor is equivalent to a long call or put condor, long theta, short gamma at delta neutrality.

A "long the body" condor is equiv. to a short call or put condor, short theta, long gamma.

riskarb.

The cal-condor combo is most often traded short the front month body, long the back month wings to gain +vega exposure.

riskarb.

Hello_Dollars · Jan 31, 2004

Quote from riskarb:

It's a butterfly using split-strikes in which you're short(long) the front(back) month. Here's a link:

http://www.liffe.com/products/strategies/recognised/short-iron-condor.htm

That's the payoff of a vertical condor.

riskarb.

Right, but with a diagonalized iron condor, you'll have positive vega vs. negative vega with a straight IC. You'll also have more positive theta and a wider profit range. The trade-off is more upside/downside risk.

AAAintheBeltway · Jan 31, 2004

Quote from johnk49:

Mav,riskarb,Could any of you guys explain the ins and out of this spread.Paul Forchione mentions it on his site as one of his favorite strategies but he does not go into detail.I've looked at many option sites but can't seem to find anything in detail.Thanks.

Get a copy of Options Volatility and Pricing by S. Natenberg. Spend a few weeks really learning it. It explains all this stuff very well.

QdzResurrection · Jan 31, 2004

great time to sell puts. puts no only worth such value. when market just had a tiny pull back. desperate impatient bears tried to jump on it and made VIX a dead cat bouce. it's gonna collpse and worth nothing soon. stocks 100% up room to go.

saturnine · Jan 31, 2004

Quote from mmmarkus:

Have an exit plan ahead of time, for when things go bad. This will help avoid feeling anxious and acting irrationally. This will remove emotion and that feeling of panic. Do not get overexposed. At some stage things will go bad when you least expect it. Selling OTM premium is a viable strategy, but very different from trading stocks. Allocate correctly and have appropriate stops. I believe a 10-25% annual return is achievable and realistic. Those shooting for a double have their expectations set too high imo.

I'm not certain what you are selling premium on, but I can assure you that an experienced trader can generate substantially more than 10-25% annually with short option strategies... I would go as far as to say > 10% monthly is quite achievable for aggressive/informed traders consistently. I may even be conservative with my collective estimation. My comments are in regard to those who are performing said strategies on U.S. securities.