Naked Option versus a Spread

Discussion in 'Options' started by EliteTraderNYC, Feb 4, 2013.

  1. newwurldmn

    newwurldmn

    It's been my experience that supply demand imbalances that cause vol to go off mark are either short lived or extremely persistent. short lived are exploited by market makers, flow traders, and layoff accounts. It's tough for a trader whose not in the flow to exploit a lot of it. Persistent never go away and is WAY bigger than the vol market. I only find a handful of these a year and they generally involve some kind of fundamental event (biotech PDUFA or similar). Generally you're shorting into it which is scary.

    And even more of these supply demand imbalances are efficient. Look at the term structure in HLF. From Feb to Jan14 the term structure is extremely inverted. Clearly there is huge demand for volatility in the front as this whole ackman/icahn thing plays out. But the market is quick to price the forward vol lower. It's agreeing with you that the vol is mean reverting and a lot of it is priced in.
     
    #21     Feb 5, 2013

  2. so in conclusion the poster that asked the original question ? Does this help him I am wondering ?


    wait for it.... wait.... here comes Hershey with some off the wall F up stuff..
     
    #22     Feb 5, 2013
  3. Okay, heres a follow up, whats a good way to determine what IV should be, versus what it is for an at the money option?
     
    #23     Feb 5, 2013
  4. newwurldmn

    newwurldmn

    It shouldn't matter too much to what you are trying to do. You are optimizing over pennies (vega) instead of thinking about the dollars (delta)
     
    #24     Feb 5, 2013
  5. newwurldmn

    newwurldmn

    It doesn't. It' a side conversation with Epic.

    But for someone named optionbull it's probably very elementary so you don't need to listen.
     
    #25     Feb 5, 2013

  6. well put ( pun intended) but seriously that's what I was trying to say all along but coudn't

    The original poster could buy IV too high but over the long run the returns will be better using options if he has a method that is decent like better than 33 percent correct... assuming stop parameters he gave..
     
    #26     Feb 5, 2013
  7. but why wouldnt you PM him to have a side conversation ?

    just think of the original poster guy that asked the question ( if he is real and not www.elitetrader.com trying to be relevant starting threads because volume is down down down), he is lost in a maze of nothingness ?
     
    #27     Feb 5, 2013
  8. newwurldmn

    newwurldmn

    hi kettle. i'm pot.
     
    #28     Feb 5, 2013
  9. The op Im sure doesn't mind... as there is a lot of relevant info here
     
    #29     Feb 5, 2013
  10. I will PM him

    see no napoleon issues here !
     
    #30     Feb 5, 2013