Short Highest IV OTM Call

Discussion in 'Options' started by Sekiyo, Jun 15, 2025 at 9:47 AM.

  1. Sekiyo

    Sekiyo

    Would it be a good starting point to short the highest implied volatilities ?

    I understand that
    + OTM options have the highest %change (vs change) relative to implied volatility.
    + A change in IV will have a greater effect on longer term options
    + Short volatility by selling Calls & buying the underlying to delta hedge.
    + High implied volatility doesn't mean high value (vs high price).

    So the option better be a long term ATM / OTM Call.
    The implied volatility better be overpriced.
    The option better be tradable, liquid.
     
    Last edited: Jun 15, 2025 at 9:58 AM
  2. All sentences that you have pointed out have an "it depends" attached to them.

    As an example, look for these two sentences:

    - A change in IV will have a greater effect on longer-term options
    - A change in IV will have a greater effect on shorter-term options

    And you'll see what I mean.
     
    DaveN likes this.
  3. Sekiyo

    Sekiyo

    This is what I see ...

    upload_2025-6-15_16-37-12.jpeg

    How long is long ? How short is short ?
    Longer will always be longer :D

    Everything else being equal...
    More time to expiration means more vega ?
    More vega means more exposure to IV change.
     
  4. newwurldmn

    newwurldmn

    it also means less volatility of volatility.
     
    Sekiyo likes this.
  5. Try it. Fortune favors the brave, :confused: Step out of theory discussions and into reality. That's the best teacher, first hand witnessing and experience, self awareness