"Selling Volatility"

Discussion in 'Trading' started by yeayo, Nov 8, 2005.

  1. yeayo


    What does that mean?
  2. Selling into strength when volatility levels are high!
  3. NTB


    Samson, what??? It means selling option straddles (non-directional) when option vol. is high.
  4. This would probably fly better in Options forum.
    Couple of very knowledgable guys in there can break it down pretty good...
  5. Verdais


    I would call selling volatility equal to the selling of any option that still has vega.
  6. cvds16


    a better definition would be selling option premium short and better make sure you adjust delta's to zero othwerwise you're doing something else too.
  7. Verdais


    What else would you be doing?
  8. dantes


    If you buy or sell an option you will have several different risks: Vega (exposure to chages in volatility), Rho (exposure to changes in interest rates), delta (exposure to changes in stock/underlying price), theta (exposure to changes in time).

    If your aim is to have a short Vega position. i.e. to have sold volatility you have to sell some options and then hedge the other risks: delta, rho and theta. If you use options with some time to expiration theta will be fairly small so you just live with that. You assume then that interest rates are stable so you ignore Rho. That leaves delta, and that can be hedged with buying (if you are short calls) or selling (if you are short puts) stock. Another way of hedging the delta of being short a call (put) is to sell a put (call), i.e. selling a straddle.
  9. Floor and pit traders, sell in to strength during high volatility and buy into weakness during high volatility all day long.

    It's HOW most of them make their living.
  10. bighog

    bighog Guest

    Vega is not an option.

    Try Lexus, BMW, MercedesBenz.....:D
    #10     Nov 9, 2005