Smart Money Sells Straddles!

Discussion in 'Options' started by shortie, Dec 16, 2010.

  1. bone

    bone

    Another beautiful market timing gem on ET - I would imagine that the W/L record for fading the market timing calls on ET for these brilliant threads is far greater than 50%.
     
    #11     Jan 3, 2011
  2. what makes you think it was a bad call? would not selling Dec 31 straddles make money on SPY? i don't have historical quotes for Dec 16 but VIX was ~18 which seems high enough.
     
    #12     Jan 3, 2011
  3. moarla

    moarla

    so what market smart money is trading?
     
    #13     Jan 4, 2011
  4. bone

    bone

    If you sold vol when you posted this thread you are underwater on the trade.
     
    #14     Jan 4, 2011
  5. is that so? show me some numbers please. Does anybody have price on Dec 31 SPY straddles from Dec 16?


    VIX ~18 on Dec 16
    VIX ~18 on Dec 31

    SPY +~1% (with little movement in two weeks)

    VIX 18 implies +/-3.67% move in SPY within 2 weeks (68% likelihood)

    so how could i have lost money on that trade?

    bone, you are something. i make at least 1 bad call every single day and and you managed to find one of the very few when i was right and you even try to argue with the call after the fact :)

    it was not my call anyway. i heard it from an option expert. but the call seems very solid based on the numbers i showed.
     
    #15     Jan 4, 2011
  6. bone

    bone

    Shortie, no disrespect intended. The VIX is implied vol 30 days forward. A straddle is historical vol - there is an important difference and you can't interchange the two. So, are you implied or historical?
     
    #16     Jan 4, 2011
  7. drcha

    drcha

    http://onlinelibrary.wiley.com/doi/10.1002/fut.20423/abstract

    The idea is to sell them and keep selling them monthly, using a relatively tame underlying like TLT. I personally would not deal in near month short straddles, but these guys showed it could be done during a period of relatively low volatility. They simply sold monthly straddles or strangles on high vol days. If you can guess right over half the time about volatility, and I would say that is a big if, you can probably make something at this. The question is whether you can keep going psychologically after one month blows up in your face.
     
    #17     Jan 4, 2011
  8. drcha

    drcha

    Absolutely correct. It is hard for an elephant to play there; there is not sufficient liquidity to put a lot of money to work.

    Just another advantage for us mice...
     
    #18     Jan 4, 2011
  9. bone

    bone

    Actually, trading the spread between the VIX and the ATM SPY or ES straddle is a great trade. For example, the VIX vol (which is 30 day implied vol OTR forward) has rallied the past few days but the historical vol (ATM ES or SPY Straddle) has continued to come off.
     
    #19     Jan 4, 2011
  10. Matt Rade

    Matt Rade

    How do you sell historical vol?
     
    #20     Jan 4, 2011