Is Credit Spread really profitable?

I meant on a single position.. but yes , your point makes sense.

 

People still use stops? And stops on options? Oh man..

 

"And stops on options? Oh man.."

I was going to express the same sentiments, but then someone informed us that it is because we don't understand stops. I'll google them later.

 

Wow, I never got that emergency telegram with the all-caps bold red lettering. I must not be one of "us" yet. Sooo jealous...

Who was it that informed that universal but still highly exclusive group that none of you understand stops? Must be some moron who specializes in absolutes.

Nah, can't possibly be anybody like that here on ET.

 

The edge is not in the credit spread. If that was the case we would all be printing money selling iron condors and strangles. The edge is usually in the mean reversion of implied volatility.

 

In my research, the edge is in identifying market environment. Is this the right time to sell a credit spread or buy a straddle or stay flat?

Selling low vix environments and buying high vix markets works great.

 

Wait, is this the opposite of below?

 

Sort of, yes = why IMO most short vol funds fail.

The market is leptokurtotic, and volatility is clumpy. While in general I am not a big fan of mean reversion , mean reversion can work if done within the same market environment. The problem is vol sellers be selling vol . Short vol sellers tend to have a low level of sophistication .

Once a high vol market environment is established, GTFO of short vol. Volatility is highly "clumpy", blowing short sellers out in the process, especially if they are betting on mean reversion into a tail event market .

 

Here is a piece of a research report I did. May be tough to decipher BUT basically this chart shows how short vol is FAR more profitable in low vol environments than in high vol environments.

I compared profitability of a 1stdv to 2stdv put spread sale VS selling the straddle in various 30 day atm iv tranches.

Long story short when vix is less than 18, sell vol. When vix is higher than 28, get flat. When vix is higher than 35, BUY VOL!

 

You are referring to retail traders, right? I thought that professional premium sellers are part of the largest institutions and are very sophisticated. Or is there no such thing as professional desks dedicated exclusively to premium selling?