Selling both Puts & Calls - Strategy idea

Quote from rew:
What is "revcon activity"?
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Revcon = reverse convertible is a staple structured product. The buyer of the note sells an option to the dealer that allows the dealer to delivery either the principal or a pre-defined number of shares at maturity.

PS. In most cases, these days it's done using some exotic features, like a worst-of on a basket of stocks and a deep ITM knock-in. Makes it look more attractive, optically.
 
Quote from sle:

Actually, I am willing to bet that it's not true. While it's very easy to say "if you bot vol here you made out like a bandit", in general picking bottoms in vol is just as hard as in any other asset. I am sure people who ONLY buy options as a strategy have done very poorly over the years.
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I agree with you. meanreversion is talking his belief, and not the science. Decades of published quant research confirms that at the money implied vol is, indeed, "rich" for just about all instruments... even over long time-frames. And the failure of Taleb's funds just goes to emphasize the case.

I don't believe Sharpe for selling straddles is very high at all, actually... I'd be interested if someone has the actual numbers. Doesn't CBOE have some indices for this?

Sharpe ratios tend to be falsely inflated for managers selling deep OTM options... because 95% percent of the time (if 2 sigma out), they ultimately escape without damage. I do suspect that if you looked at their day-to-day volatility (showing intra-month/intra-day draw-down), Sharpe ratios would be more realistic. Anyone know if there's research on that?

Simply "systematically" selling ATM vol and forgetting it... Sharpe isn't high at all, and even the *degree* of richness is to be argued (especially with transaction costs + spread considered). And it'll be very hard for anyone to survive, from a business point of view. Trying to exploit this richness and failing to do so incorrectly is a well known story.
 
Quote from sondermark:

AAPL stock: $350.00
Sell May $350 Call: $7
Sell May $350 Put: $7
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I would make it an Iron Condor, don't buy the stock - buy OTM options to go with the short $350.00 calls and puts.
  • Buy May $360.00 Call @ $3.20
  • Buy May $340.00 Put @ $3.45
Maybe even 1 strike further OTM on both legs.
  • Buy May $365.00 Call @ $1.95
  • Buy May $335.00 Put @ $2.34
 
Quote from heech:

Simply "systematically" selling ATM vol and forgetting it... Sharpe isn't high at all, and even the *degree* of richness is to be argued (especially with transaction costs + spread considered). And it'll be very hard for anyone to survive, from a business point of view. Trying to exploit this richness and failing to do so incorrectly is a well known story.
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Just to answer the query re: Sharpe. CBOE data from June 88 to May 07 on BXM and PUT indices: 0.24 and 0.28. SPX same timeframe is 0.18.
 
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