What do experienced options buyers do in these times who want to bet on volatility without the danger of vol crush? Are long dated or short dated best, where on the skew should one buy?
Far OTM, Front Month. For a liquid contract, just do enough size to get the delta and gammas you want. Though it seems IV is relatively low, so that would make far OTM pricier. I just need to hit the broad side of a barn for directional trades.
The corner stone of my trading is options, in matter fact a very good system i found back then that gives signals for directions years back was useless till i did it with options and proved amazing. Any ways, high volatility or not i believe the best way to bet is always not to pay too much extrinsic value and at the same time NOT be Far OTM,, personally i use exclusively options that are 10 percent in the money where the extrinsic value is NO more than 10% of the cost of the stock itself, so a stock at 10 bucks i would be the 9 call for no more than 1.1. IF volatility is high on all which is not always the same, for example now WFC has CHEAPER options than GE, speaking in terms of percentage, Thus you must calculate on percentage basis, in times of volatility this gives you a limit on your losses and unlimited potential gain, when the gain gets too high, its significantly easier to hang on to the position by rolling it, selling the first option and rebuyin it with the same criteria, this way you lock it gains and still participate in the upside. This worked good for CCL recent weeks, WFC, and SLV Short dated best in times of volatility because you can get the same criteria as above BUT most importantly you wont give up too much of Theta (time value) which erodes quickly when Delta becomes high, ie position goes your way. Other wise normally i play a month to two out, but now i am playing the weekly even though my position biases which i enter on MACD signal buy and sell are in for months i just roll the options, either because they are expiring or because they are profitable. Rolling the profits helps you always see your gains smaller if you get the P/L itch when gains become too big, thus this you never see big P/L open but you know you made a profit because you closed the old position. IN case you didn't understand the Delta Theta, here is an example WFC for example, lets say its at 30 even, you buy a call for June 27 strike for 4.0 dollars for lets say, that 3 intrinsic and 1 dollar extrinsic,, Lets say i buy the May call same strike for 3.5, that 3 intrinsic and .5 extrinsic,, assuming we get it right and stock flies up to 40. The value of both calls will probably become the same or within a much smaller difference in cost than 50 cents because now they both are DEEP IN THE MONEY, which means they would have very little extrinsic value, plus your cost is cheaper, although you got an extra month in the other one, in times of HIGH VOLATILITY as you asked i find the extra time useless, because the stock will either go higher or lower and very fast. In low volatility though i am definitely on the longer term ones for a bit more money because then moves are tiny and the longer duration option allows you to not pay twice for the extrinsic value, it also holds more time value should the stock drop and become completely extrinsic
Not be far from the money because 90% of options expire worthless, yes your gain might be higher if it gets to that strike, but my experience has proven that 1 lot 10 percent in the money can make as much or more depends how far out as 3 lots far out of the money, but most importantly its got HIGHER probabilities
This quote is probably responsible for untold $$$$ losses over the years. I have no doubt it's true, YET the path the option takes on its way to zero is what counts.
Agree. It’s like saying 5 out of 6 times, You’re safe playing the Russian roulette. It’s true. But what happens when it’s not the case ?