"Selling Volatility"

cvds16 · Nov 9, 2005

Quote from Samson77:

Floor and pit traders, sell in to strength during high volatility and buy into weakness during high volatility all day long.

It's HOW most of them make their living.

this has nothing to do with the term "selling volatility"

Samson77 · Nov 9, 2005

Quote from cvds16:

this has nothing to do with the term "selling volatility"

In who's dictionary ?

This is a very common term on the floor.

cvds16 · Nov 9, 2005

selling volatility is a very common term on the floor, i know i used to be there about 15 years ago, they mean selling premium in options with that.

Samson77 · Nov 9, 2005

Quote from cvds16:

selling volatility is a very common term on the floor, i know i used to be there about 15 years ago, they mean selling premium in options with that.

LOL

Who cares ?

To me it is interchangable and can be applied to the option market in one context and to selling/buying into strenght in another context.

I will often sell/buy into a run at volatility extremes.

Sheesh ET can get so stupid with these things sometimes, relax people...

Enfinity · Nov 9, 2005

Dantes has it correct, you guys are talking about fading. Selling the vega premium and hedging the other risk variables isolates the vega premium: "selling volatility"

riskarb · Nov 9, 2005

Selling volatility is short vol+gamma. It's a broad, generic term and doesn't imply isolating any ancillary greek exposure. It is what it is. There are no position implications, but selling a straddle carries the highest sensitivity to vol.

dantes · Nov 11, 2005

"Selling volatility is short vol+gamma."

I would disagree with that. If you want to be short vol and only vol you can hedge gamma. One way to do it is to sell longer dated options and buy short dated ones. Gamma is just another risk, granted a second order one, that can be hedged.

cvds16 · Nov 11, 2005

Quote from riskarb:

Selling volatility is short vol+gamma. It's a broad, generic term and doesn't imply isolating any ancillary greek exposure. It is what it is. There are no position implications

this is the best definition as how the term was used on the floor

riskarb · Nov 11, 2005

Quote from dantes:

"Selling volatility is short vol+gamma."

I would disagree with that. If you want to be short vol and only vol you can hedge gamma. One way to do it is to sell longer dated options and buy short dated ones. Gamma is just another risk, granted a second order one, that can be hedged.

Yes, agreed, long time spreads are long gamma and short vol. I stated it was a general-description related to methodology. There was no mention of isolating ancillary greeks. Yes, to be literal, selling vol is selling vega.