What should the VIX be at in order to sell options where RvR is worth it

[ironchef]

Last year continued to buy long calls on AAPL while it was tanking and thought..oh it will go back up sometime. IV crush killed my calls. Also had a terrible trade on VRX selling bull put spreads and also buying the stock because it was cheap IMO

My suggestions:

1. Don't short any naked options, especially OTM options. Your mistakes can blow up your account faster than you can react, even with stops (gap up/down happens more often than you think). Remember: limited gain, (almost) unlimited loss.

2. If you are doing directional bets like what you did with AAPL, try to do longer duration options as short expiry options depends on too many factors: IV, directional, time decay and you maybe correct with directional but your short duration options just do not have time to develop.

How do I know? As a small mom and pop retail investor, been there done that.

Good luck.

 

[ET180]

My suggestions:

1. Don't short any naked options, especially OTM options. Your mistakes can blow up your account faster than you can react, even with stops (gap up/down happens more often than you think). Remember: limited gain, (almost) unlimited loss.

2. If you are doing directional bets like what you did with AAPL, try to do longer duration options as short expiry options depends on too many factors: IV, directional, time decay and you maybe correct with directional but your short duration options just do not have time to develop.

How do I know? As a small mom and pop retail investor, been there done that.

Good luck.

Naked puts don't have unlimited loss. Selling a put is less risky than selling 100 shares of the underlying. The only difference is that with options, if you get assigned, you get the underlying at a cheaper price in exchange for limited profit potential. For some circumstances, this makes sense to me.

I want to reiterate the last statement by dunleggin,

"Anyway, I'd wager that your skills and abilities in analysis, trade selection etc will influence your P&L to a far greater extent than any nominal level of the VIX."

I really think that 80% of the risk on any given trade happens at entry. It's the trade selection and analysis that went into deciding to take on the risk of a given trade that will influence the P&L more than anything else. Some of that also includes a sense of the health of the overall market. Basically regardless of the underlying, sometimes there are safer times to have long market exposure than others.

 

[treker5150]

Naked puts don't have unlimited loss. Selling a put is less risky than selling 100 shares of the underlying. The only difference is that with options, if you get assigned, you get the underlying at a cheaper price in exchange for limited profit potential. For some circumstances, this makes sense to me.

I want to reiterate the last statement by dunleggin,




I really think that 80% of the risk on any given trade happens at entry. It's the trade selection and analysis that went into deciding to take on the risk of a given trade that will influence the P&L more than anything else. Some of that also includes a sense of the health of the overall market. Basically regardless of the underlying, sometimes there are safer times to have long market exposure than others.

I agree with selling short covered puts as long as I have the capital to take on the shares if assigned. That has been a strategy that has worked for me in the past...hard to do tho with only 10k available..most blue chips stocks would required all of that and then some to short puts on there underlying.

 

[garachen]

Vix / implied vol has become disconnected with the true fragility of the market.

Nevertheless, 25 if it got there slowly. 35 on a sudden move. (<1 month). Personally, I'd go in around 70. There's almost always something better to do than selling vol. Should do that instead.

 

[newwurldmn]

Vix / implied vol has become disconnected with the true fragility of the market.

Nevertheless, 25 if it got there slowly. 35 on a sudden move. (<1 month). Personally, I'd go in around 70. There's almost always something better to do than selling vol. Should do that instead.

You think the market is much more fragile than the vol surface is implying?

 

[garachen]

Yeah. There's quite a bit of evidence that over the last few years the vix has become inadequate as a measure of risk. This is a result of the market dynamics changing. A lot of people are looking into alternative measures that capture the risk that the vix is now ignoring. The general term is fragility.

I didn't come up with the idea but I've seen enough to believe it to be credible. In a round about way it explains why average hedge fund returns were so bad last year vs the market.

If the vix measured risk instead of implied vol I think it would currently be around 21-24.

However, this should be a really good year for trading. Maybe best since 2009.

 

[Handle123]

My suggestions:

1. Don't short any naked options, especially OTM options. Your mistakes can blow up your account faster than you can react, even with stops (gap up/down happens more often than you think). Remember: limited gain, (almost) unlimited loss.

2. If you are doing directional bets like what you did with AAPL, try to do longer duration options as short expiry options depends on too many factors: IV, directional, time decay and you maybe correct with directional but your short duration options just do not have time to develop.

How do I know? As a small mom and pop retail investor, been there done that.

Good luck.

Yeah. There's quite a bit of evidence that over the last few years the vix has become inadequate as a measure of risk. This is a result of the market dynamics changing. A lot of people are looking into alternative measures that capture the risk that the vix is now ignoring. The general term is fragility.

I didn't come up with the idea but I've seen enough to believe it to be credible. In a round about way it explains why average hedge fund returns were so bad last year vs the market.

If the vix measured risk instead of implied vol I think it would currently be around 21-24.

However, this should be a really good year for trading. Maybe best since 2009.

This is one of the better threads, thank you. I have found I can't trade VIX long term as I trade other markets as the VIX is false in the value- so as stock market goes up, VIX can't show actually risk as it can't get below zero, isn't that right? So the stock market could go to Dow 100,000 as the VIX will slow down to never hit zero, and as the enclosed chart shows, selling 25-35 options, WOW, need deep account to sustain the losses in 2008. Am thinking it is very much like Eurodollars for 8 years of never hitting 100, although Eurodollars couldn't go up much, in futures they go out ten years of doing spreads and lesser in options. I believe Eurodollars is hidden secret market that many never consider trading long term, margins very low.

What I have been doing is more medium term doing Call credit spreads at upper BB has limited risk and Debit Call spreads/Put credit spreads at 12 or lower BB? So if nearby is 12 or lower and nearing end of contract, do them in next contract at higher pricing.

The ETF does seem to be better deal of possible buying the UVXY and sell OTM calls and buy Puts to hedge? Volume really expanding, someones is buying the hell out of it.

 

[newwurldmn]

Yeah. There's quite a bit of evidence that over the last few years the vix has become inadequate as a measure of risk. This is a result of the market dynamics changing. A lot of people are looking into alternative measures that capture the risk that the vix is now ignoring. The general term is fragility.

I didn't come up with the idea but I've seen enough to believe it to be credible. In a round about way it explains why average hedge fund returns were so bad last year vs the market.

If the vix measured risk instead of implied vol I think it would currently be around 21-24.

However, this should be a really good year for trading. Maybe best since 2009.

Are you talking about some of the cross asset studies that quant funds do (looking at credit spreads and certain bank funding rates, etc) to study "market fragility?"

Why do you think vix has become an inadequate measure of risk? Was it ever a good measure in reality? If You think it was, what has changed?

 

[options_trader_europe]

Hi yall,

I'm new here, but not new to trading. As I continue my learning about the markets I'm wondering about the VIX and how I should use that index in my covered put selling. A little background on myself, I'm 25 years old with a 10K cash account with margin..I started with 18,500 in the market.....I have learned a lot of lessons. I have finally started me make some of my money back but learning how options work. I lost my a$$ buying options when I had no clue or understanding of them. I am open to all criticism and ideas. Where should one with an account size like me be doing. I also only trade blue chips..which I know is hard to believe with an account size like mine.

You need to monitor VIX only if you trade "big guys" like SPY/QQQ/AAPL etc. But having such small account, you have big ADVANTAGE over really big traders since you have much much more stocks to choose. They can't trade mid-size and small-size companies with billions of USD in the account, but having $10k you could choose from hundreds of stocks... so, my advice, dig deep in those strategies that are more or less delta-neutral or those where probability of success much higher than 50%, like condors, double-calendar spread, vertical spreads etc... I highly recommend you as a first step find those stocks and trading conditions, where current market state is in the favor of your trading strategy... never trade stock X just because you like or know stock X, but instead find such trading conditions where majority of circumstances are in favor of what you gonna trade... (like high IV on near-month options and smaller IV on far-month options for calendar spreads).
it's just not optimal to trade big guys (SPY/QQQ etc.) if you could choose among smaller stocks for better entry point...

 

[sle]

If the vix measured risk instead of implied vol I think it would currently be around 21-24.

What exactly is "risk"? As a predictor of realized vol, VIX seem to do as good of a job recently as before. If you compare VIX prices with extreme risk pricing such as extreme tails or DoD cliquets - well, those are driven by regulation. You can't use internal/external bank funding levels since the structure of funding has changed and it's hard to compare it's predictive value. Are we talking event risk here?