Selling Premiums On Stocks

[Profitaker]

Quote from newbunch:

Why did you look at daily instead of hourly or minute by minute or tick by tick?

Because daily EOD data is readily available. I would always try to include as much data as I could, not exclude it. If “hourly or minute by minute or tick” data was readily available I’d use that as a preference. The more data you include the more accurate the picture, no ? After all, it doesn’t cost anything.

Quote from GBOS:

Just some slow home made - basic language code – software

Impressive !

Quote from Pa(b)st Prime:

Thank's for the correction on terminology. I know it was big in the mid-late 90's.

Welcome. I know it used to be a moneyspinner, maybe so in the future, but not now, at least not in the UK market.

 

[Eliot Hosewater]

Quote from Profitaker:

That's actually a reverse dispersion / long correlation trade. You'd have to look at implied index correlation to see whether the conditions are right for that to be profitable now. When I last looked, it wasn't.

How do you look at implied index correlation, and what are you looking for?

I've only heard of using dispersion as a hedge against options on individual stocks, e.g. sell some puts on individual SP100 stocks and buy OTM OEX (or XEO) puts.

 

[Profitaker]

Quote from Eliot Hosewater:

How do you look at implied index correlation, and what are you looking for?

By comparing the implied vols of the index options with the implied vols of the component options, then calculating an implied index correlation (IIC) between the components stocks. It’s complicated, but as a very simple example, if you have a 2 x stock index with both stock vols at 20% and the index vol at 20%, then the implied correlation between the stocks is +1. Same example but with the index vols at 14.14% then the implied correlation between the stocks is 0.

With the implied index correlation close to +1 you’d look to run a long dispersion/short correlation trade (short index options / long components options).

With the implied index correlation close to zero you’d look to run a short dispersion/long correlation trade (long index options / short components options).

As I said, last time I ran the calcs the UK market IIC was running at +0.40, which wouldn’t warrant either dispersion or reverse, IMHO. But that will change !

 

[tyrant]

Quote from tyrant:

I use Interactive Brokers ( IB ) but am not resident in US. If I short a stock option and subsequently exercised against, will IB automatically deduct funds from my account and take up the stock for me.

And what if a dividend is declared on the stocks I now hold, will they be sent to my home address or is it credited into my IB account?

If I am short calls on a stock and exercised against, I should be short the underlying stock right? Is this allowed with IB? Do I have to buy back the stock within a certain time frame?

Appreciate some help if possible. Thanks.

 

[tyrant]

I have read quite a number of posts over the past year that the reason some traders are now reluctant to sell premiums in index options is because VIX is at historical low dropping from over 40 to about 10 now. My question is : is there a similar drop in implied volatility of stocks IN GENERAL? I mean, I still see stocks having IV of 30 to 60.

Why aren't more people selling premiums in stocks???

 

[forex-forex]

Quote from tyrant:

Why aren't more people selling premiums in stocks???

I think selling premiums is alive and well with Debt and Credit Spreads.