Karen the Supertrader - TastyTrade Hybrid Experiment

I agree that there is an 'unknown' component hence the long-term relationship. But there's no disputing that IV > HV or RV in the long-term. In the end, that's all that matters to me.

 

But that doesn't mean anything. LOL.

 

It matters when I get paid based on a higher IV as compared to the risk I realize.

 

I don't think you have analyzed the true source of the p&l. But it doesn't matter. It's your money and I'm beating a dead horse here. I wish it were that easy to just sell risk premia and enjoy the generosity of the market.

 

It is that simple. It's the principle of risk aversion and utility.

To each his own.

 

It doesn't matter why IV > HV. But if we agree that IV > HV isn't that the end of the story?

 

The risk premium is due to the fact that the market is net risk averse. They would rather eat a 1-2 vol loss than earn a 1-2 vol gain and risk blowing up.

If the implied vol is 12, the market is probably forecasting 10. That's why implieds are always > realized in "normal market conditions"

 

You will probably lose if the market rallies.

That's the problem with short vol. you can't escape the gamma curve when volatility picks up. You can only shift it around.

Mind you, I pretty much only sell vol, and I spend most of my trading hours focused on all the bad things that can happen to me.

 

I would agree 100% as I mention risk aversion a few posts up.

 

The skew didn't exist prior to '87 right? Or am I getting that confused?