IV is not the enemy in options trading. It doesn't need to be always eliminated or neutralized. IV can be your friend if you have the correct strategy to take advantage of it. This poster seems to only know how to short volatility and thinks he's found the holy grail with shorting options with spreads. Just want everybody to know that options are not all about shorting volatility or shorting volatility with spreads.
Just so you know, there is no way to eliminate IV risk, only to reduce it and/or reduce its negative impact if your options strategy is not profiting from an increased level of it. Once you start trading your real money in real life for a while, you will find that out eventually.
@TheDawn wrote: Even Investopedia writes: "If a position is vega neutral, it doesn't make or lose money when the implied volatility changes." Are you saying Investopedia lies? Besides this, I of course implied just an "almost" elimination, since a 100% elimination IMO won't be possible always. You are just splitting hairs! Cf. also the table I had posted here.
First of all, why are you quoting somebody's post with "@so and so wrote"? Did you put me on "Ignore"? If you did, I don't mind you not responding. LOL Anyway, since you did, let me explain. Investopedia is referring to vega-hedging, which is entirely different from what you are doing. First, you need to understand what's vega and what it measures. What investopedia is saying that is when the position is perfectly hedged with regards to vega which is not what you are doing, then you are eliminating the option's sensitivity to vega then no matter how IV changes, the option's price won't be that sensitive but that doesn't mean there is no more risk then it's possible that you won't make a loss but again that's different from what you are doing. This is not splitting hair. Eliminating IV risk is impossible, that's that. That's the reality. If you want to reduce it "almost" elimination, it's going to cost you in terms of profit. And even then, you still wouldn't eliminate it or reduce it to "almost" elimination. Like I said, once you start real-life trading, you will realize this.
The comedy show that never ends Dum Dum,you are the one that brought up dynamic hedging...... No such distinction between realized vol and implied volatility???? Say WUT?????
@TheDawn wrote: Yes, you are on my ignore list, but since you are so dishonest and use multiple accounts, you are able to see and quote my postings from your other (to me unknown) account... That's the difference... Same with this @taowave idiot. He too uses a 2nd account here. You blocked users should not be able to see nor quote my postings. How are you still able to do, if not using a 2nd account?... [To the moderators: the users @TheDawn and @taowave violate the ET AUP, by using multiple accounts here. Proof: see above.] My attempted method for achieving IV neutrality vs. vega-hedging are in practice indeed different methods, but the end result is the same. Ie. I try to find such a method that is not dynamic-hedging but just a static one by choosing the right parameters for options spread. I think with diagonal spreads and closing it earlier than expiry it should be possible to achieve something similar to vega-hedging to neutralize the IV risk. And then one can concentrate on the direction of the underlying only (ie. then half of the risk gets eliminated, as also was stated in the title of this thread). It seems this is easily achievable: one just needs to make the position vega-neutral (done once at beginning, unlike constant adjusting with delta-hedging). This text explains it with a practical example using a vertical spread: http://investpost.org/options/veganeutral-trading-strategies/ In my interpretation they say this:
Multiple accounts??? Hallucinate much?? Taowave regrets having one account when dealing with stubborn noobs like you,you think taowave would create a second account??? Ild rather stick sharp needles in my eyes... You are trading months out and trying to eiminate vega risk?? Lets say I bite on your diagonol theory,what was your initial edge? Some form of skew? And now you are concentrating on the direction of the underlying,which is precisely what I advised before your hissy fit??? My "mental masturbation" line wasnt meant to upset the apple cart... I think you are needlessly complicating things trying to eliminate vega 3 months out,and for every risk you neutralise,you also give up potential profit and in your case bid ask... If you are decent at direction,managing Delta,I think you are way ahead of the game. If you are really good and play 1 week and in, you can tame that nasty little bitch Ms Gamma, or make friends with her and go long it.... I would keep it simple..Ill follow up under my imaginary second account.
Ok but these strategies still won't eliminate the IV risk though. This is what everybody is trying to tell you. What they do is to make the overall position less sensitive to IV changes and thus lessen the impact of an adverse change in IV. That's it. But it doesn't eliminate the IV risk and IV risk is not just about it increasing. What if it decreases? Or what if it doesn't change at all? If you look at the example of the vega-neutral position that is shown in the link that you posted, you will actually make the most loss when the underlying doesn't move at all. That's a risk as well. That's what @taowave and everybody is trying to tell you. Options trading is not about eliminating IV risk; it's about employing the most optimum strategy(ies) to deal with the future outlook of IV. In other words, it's not IV that matters the most; it's the future actual volatility that does. And this goes back to the very post that I wrote to you back several months ago when I asked you do you know how to read a payoff diagram and you got mad. I asked you that because a payoff diagram is going to show you what's going to happen to an overall option position in different scenarios of how actual volatility plays out so you can find the most optimum option strategy(ies). And btw, the reason why I can see your post is because I didn't put you on my "Ignore" list although many times I really wanted to but you are just far too entertaining with your views, especially the ones on China. But anyway, I don't have a second account, just so you know to ease your paranoia. LOL
@TheDawn and @taowave, I ask you both ignorants to just piss off from this as well any of my discussion threads, as you are nothing but destructive idiots without contributing anything positive but your personal rants. I don't need your opinions, I'm so free and just shit on your opinions, you POS SCUMS of ET! DON'T PARTICIPATE IN MY THREADS! JUST PISS-OFF!
Did you read my previous post? You obviously didn't read it or didn't understand it. LOL Anyway you will learn soon enough once you start trading for real.