i would suggest running the analysis yourself. you can use spot vix as a place holder for 1month implied vols and then calculate the 30d realized vol and graph the two. you can then look at any time periods you would like (2008, flash crash in 2010, u.s. downgrade 2011, bull market of 2009, etc...
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
So, since index volatiliy is trading richly...
- Thread starter TskTsk
- Start date
i would suggest running the analysis yourself. you can use spot vix as a place holder for 1month implied vols and then calculate the 30d realized vol and graph the two. you can then look at any time periods you would like (2008, flash crash in 2010, u.s. downgrade 2011, bull market of 2009, etc...
What I'm saying is if most of the market is losing money, chances are I'll be losing money as well regardless of the strategy.Quote from Jgills:
i'm not saying you're the only one losing money, i didn't know your p&l was calculated on a relative basis.
ok- es has no jump risk and you're computer is programmed to be hedging your delta continuously with no transaction costs. wake me up when we're back in reality
And the no transaction cost and continous hedging assumptions of BSM are faced by both option sellers and buyers, so the surpluss IV (Seller edge) is not due to that.
Quote from TskTsk:
What I'm saying is if most of the market is losing money, chances are I'll be losing money as well regardless of the strategy.
And the no transaction cost and continous hedging assumptions of BSM are faced by both option sellers and buyers, so the surpluss IV (Seller edge) is not due to that.
i know that those assumptions are faced by sellers and buyers, that wasn't my point. i still don't know what tenor you're considering and i was only trying to make you aware of the flaw in thinking there is "no jump risk because its 24 hours". it trades 24/7, but you're not there 24/7. and you know just as i know that when something hits the wire the market reacts instanteously, which is almost the same as a jump. go look at 5 min bars back in fall of 2011, would you have been able to be properly hedging your delta in there?
"So, since index volatiliy is trading richly..."
Funny because 10 days ago on Bloomberg Michael Platt of BlueCrest said volatility was cheap.
Funny because 10 days ago on Bloomberg Michael Platt of BlueCrest said volatility was cheap.
Quote from TskTsk:
Interesting. I've always thought if realized was high, there would be more fear in the markets both amongst option buyers (leading to higher demand) and sellers (pricing their sales higher). Kind of like "fear breeds more fear".
Battle between two processes:
Volatility clustering
Volatility mean reversion
JGills is right about the tenor. It matters a lot.
Quote from Jgills:
i know that those assumptions are faced by sellers and buyers, that wasn't my point. i still don't know what tenor you're considering and i was only trying to make you aware of the flaw in thinking there is "no jump risk because its 24 hours". it trades 24/7, but you're not there 24/7. and you know just as i know that when something hits the wire the market reacts instanteously, which is almost the same as a jump. go look at 5 min bars back in fall of 2011, would you have been able to be properly hedging your delta in there?
I'm not there 24/7, but I can still have orders active on the exchange even if I'm not in front of the screen. It's called a market if touched order, not exactly rocket science.
I also eyeballed the data from 2011, the worst I see is a 25pt drop in 30 minutes. In those 30 minutes I also see plenty of liquidity to throw market orders. Is that what you consider a 4% jump?
Quote from TskTsk:
I'm not there 24/7, but I can still have orders active on the exchange even if I'm not in front of the screen. It's called a market if touched order, not exactly rocket science.
I also eyeballed the data from 2011, the worst I see is a 25pt drop in 30 minutes. In those 30 minutes I also see plenty of liquidity to throw market orders. Is that what you consider a 4% jump?
ok. it seems you're ready. go put the trade on.
i still don't know the tenor
Quote from Jgills:
ok. it seems you're ready. go put the trade on.
i still don't know the tenor
You'd known had you read the thread before trying to educate me about your "transaction costs" and "4% jumps".
But yeah Ill go put the trade on. And I'll watch out for those nasty "transaction costs", those things can really wipe you out.
You'll have to run the analysis yourself, but it's easy to do. On average, you'll find that as stat vol increases, the relative spread between IV and realized narrows.Quote from TskTsk:
newwurldmn, I agree. short spikes may happen here and there. You mention high vols means less likelihood of realized below implied. Care to expand on this? Are there any papers on this?