Trading Volatility

[Stymie]

Volatility trading has been popular for more than a decade for retail investors. There have been many books teaching people how to sell strangles, straddles and iron condors. The idea works after big market moves and high volatility compared to the average volatility of the underlying.

I believe there are too many people trading the vols to make it easy like the 1990's.

Now when the market rallies and if the puts get expensive, there is as good a chance to make money going long puts then the traditional sell expensive options.

The other way to think about trading volatility in most products, is that vols are high when the market drops and vols are low when the markets at its highs. So it's almost like buying the low when selling puts and selling calls at the highs expecting it to go down.

Then you have binary events, where both the calls and puts get expensive anticipating news. The at the money straddle will tell you what the expected move is. Then on the news, there will always be a move and then you have to guess whether the move is going be greater than what the market priced the ATM straddle. The markets are efficient and there is no free lunch. Flip a coin.

 

[El OchoCinco]

Does any1 have any experience with CL options? I've been placing a few trades on CL and I think IV is less on the puts as the market moves in favor of them. I thought IV would rise on the puts when the market moves in their favor due to market drop. Mbey I'm trading a few to many strikes OTM.

Any advice would be good.

Thanks.

Do not trade CL options per se, but crude oil tends to spike up, not down. Thus vol tends to be skewed in favor of calls.

 

[newwurldmn]

Volatility trading has been popular for more than a decade for retail investors. There have been many books teaching people how to sell strangles, straddles and iron condors. The idea works after big market moves and high volatility compared to the average volatility of the underlying.

I believe there are too many people trading the vols to make it easy like the 1990's.

Like other institutional strategies, the nineties were incredibly strong years. I think the disruption of computing power and the dotcom bonanza left a lot of opportunities on the table.

Since then, there's been a push to find yield and alpha and that has driven the performance of all quintessential hedge fund strategies down. I don't think retail is moving the needle on this at all.