If you buy Calls on dips, you must also short volatility?

Discussion in 'Options' started by crgarcia, Nov 6, 2009.

  1. Dips usually offer good rebound opportunities.
    Options (Calls) limit the losses if there's no rebound.

    However, during dips implied volatility is usually jacked up, thus even if the stock rebounds, you'll lose as a result of the lower implied volatility.

    So, you must short volatility?
  2. Vertical calls then. Really though it may not be worth it due to slippage or commissions.
  3. 1) Think of it like a box of chocolates........you never know for sure what's in there until you bite in.
    2) Yes, be cognizant of implied volatility. :cool:

  4. There are alternatives to buying calls.

    You can sell OTM put spreads. Profits are limited, but you will have a much higher probability of earning a profit.

  5. Mark,

    So selling the OTM put spreads into a price decline is a way to take advantage of increasing IV? (I read your blog and have "Rookies", both are great.)

    I now trade mainly SPY (the ETF) because it is in my "learning comfort zone". I have done a lot of call/put buying in the past, but when I realized it was almost a 50/50 crap shoot I have looked for a better way.