Surviving super low implied volatility markets (ES/FTSE)

hardtofin

hardtofin

Hi guys,

Just a quick question on how you guys survive/trade when IV is a low as it currently is across indices like ES/FTSE. In the front month, implied vols are down to around 8%.

I am usually a net seller of options collecting theta and trying to stay mainly delta neutral. However, the vol is SO low now, I feel like I cant really sell any options as it's just not worth it. So through circumstance I have become net long options as I don't want to sell theta when vol is like this, only to see the market fly in my face and crush me 24 hours later (just my luck).

It leaves me being long options and losing money on time decay. I have a large portfolio of index options across many different strikes and months, so I run a constant rolling portfolio of options usually long AND short. Now I have very few short options left.

Do you guys just tend to sit tight, picking off cheap options to buy waiting for a move or should I cave in and start selling options for a small amount of premium just to negate the time decay I am bleeding.

Interested in people different methods of surviving this kind of environment. ES is looking now like it did last summer when it went on nearly 40 sessions without a single move.

Thanks.

hardtofin :)
 
you can use a further expiration and modify your trading setup to suit low volatility season

as a good options trader you should be able to perform well regardless of market conditions

;]
 
It's definitely tough. You can look out for calendar opportunities but even those are tough on index products given term structure. Skew is still there so you could go diagonal by lowering the strike on the short side.

There are still some opportunities on individual underlyings but the key is to be notionally small in a number of names.
 
My post is not to tell you what is good or bad (or if you are right or wrong), but provide you with a different view.

The professional traders on ET will tell you that selling option is a risky business but in my opinion buying call options in the current environment is also not a good business. I am a nonprofessional retail trader and have been a net buyer of call options since 2013. I have not written (sold) any significant number of call options in the past 3 to 4 years until this year because of the current low volatility and high underlying situation. I think the market is pricing in a market top in the not too distant future.

I only traded options on stocks I owned and I noticed that when the stock price was high volatility was usually low and vice versa. So, I am willing to take in smaller premiums to complement my stock holding returns. I am also started to buy puts since they are "cheaper" in a low vol environment?

I am not sure if I am dumb or smart but if any of you have any words of advice/wisdoms for me I appreciate it.

Best wishes to all.
 
ironchef said:
My post is not to tell you what is good or bad (or if you are right or wrong), but provide you with a different view.

The professional traders on ET will tell you that selling option is a risky business but in my opinion buying call options in the current environment is also not a good business. I am a nonprofessional retail trader and have been a net buyer of call options since 2013. I have not written (sold) any significant number of call options in the past 3 to 4 years until this year because of the current low volatility and high underlying situation. I think the market is pricing in a market top in the not too distant future.

I only traded options on stocks I owned and I noticed that when the stock price was high volatility was usually low and vice versa. So, I am willing to take in smaller premiums to complement my stock holding returns. I am also started to buy puts since they are "cheaper" in a low vol environment?

I am not sure if I am dumb or smart but if any of you have any words of advice/wisdoms for me I appreciate it.

Best wishes to all.
More...

I am a professional trader and I sell options all the time, it is the main way I make money. I guess it depends in what capacity you are talking about selling. Are you talking about naked options, part of a spread, a long way out of the money puts/calls etc?

Certainly there are widely varying degrees of risk in those but as part of a large option portfolio, all are viable.
 
ironchef said:
My post is not to tell you what is good or bad (or if you are right or wrong), but provide you with a different view.

The professional traders on ET will tell you that selling option is a risky business but in my opinion buying call options in the current environment is also not a good business. I am a nonprofessional retail trader and have been a net buyer of call options since 2013. I have not written (sold) any significant number of call options in the past 3 to 4 years until this year because of the current low volatility and high underlying situation. I think the market is pricing in a market top in the not too distant future.

I only traded options on stocks I owned and I noticed that when the stock price was high volatility was usually low and vice versa. So, I am willing to take in smaller premiums to complement my stock holding returns. I am also started to buy puts since they are "cheaper" in a low vol environment?

I am not sure if I am dumb or smart but if any of you have any words of advice/wisdoms for me I appreciate it.

Best wishes to all.
More...

I think you are knowledgeable. However, why do you think that a long call strategy is bad for a skeptical bull?

I think a long gamma strategy would be good for a market with low vol and is prone to upward spurts.
 
xandman said:
I think you are knowledgeable. However, why do you think that a long call strategy is bad for a skeptical bull?

I think a long gamma strategy would be good for a market with low vol and is prone to upward spurts.
More...
You gave me too much credit, I am an amateur who knows just enough on this complex subject to be dangerous.

I really don't know if the general market will keep going up but after riding the bull market and been lucky for a few years, should I continue to keep pushing my luck?

As for long gamma, the market seemed to be prone to downward spurts too every time the President tweeted?

Regards,
 
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