Goldman Says "Diversify By Naked Shorting Volatility"!!

WTF?!?

A new Goldman research paper recommends that people should diversify their portfolios by naked shorting volatility? Does that make any sense? Sounds like a recipe for disaster to me.
Short Volatility: The New Asset Class?

 

Never short volatility.


Ask Victor.

 

Ohhh Atticus?!??! Where are you?? lol

 

Naked selling can definately be a very profitable strategy as long as you follow correct postion sizing and money management. Buying options is the equivalant to buying hope I'd much rather sell it.

A lot of people get hung up on shorting options because they are exposed to unlimited risk well guess what you are exposed to ever time you trade futures yep unlimited risk (holding a long future to zero isnt far from unlimited risk).

 

Never short Vol? what are you doing when you sell options?

This is how banks and hedge funds make a killing from the rest of us.....that said it takes a boat load of money to make money selling vol and you have to be content to sit back and collect premiums and be smart enough to hedge.

i don't know if you are referring to a specific time frame, but i think the 2 of you are kidding yourselves if you think selling vol is a bad strategy.

 

Proper trading is based on a number of axioms, including:

1. As risk increases, reward decreases.
2. As volatility increases, risk decreases.

Naked shorting volatility is the exact inverse of these two axioms.

 

Sh!t, a secret never stays a secret very long. Been doing that for a while now.

Anyone can post their full report?

 

Ferdinand - I agree with and understand the first axiom.

But why does risk decrease as volatility increases?

Enlighten me

Proper trading is based on a number of axioms, including:

1. As risk increases, reward decreases.
2. As volatility increases, risk decreases.

Naked shorting volatility is the exact inverse of these two axioms. [/QUOTE]

 

Risk becomes reality through volatility.

 

The market creates pathways as it travels from operating point to operating point. With time a number of possible avenues is denied and a volatile move occurs in the available direction. There is a clear direction and money is made quickly because price is traveling fast. The result is that risk decreases.