So, since index volatiliy is trading richly...

Discussion in 'Options' started by TskTsk, May 31, 2012.

  1. Jgills

    Jgills

    i would suggest running the analysis yourself. you can use spot vix as a place holder for 1month implied vols and then calculate the 30d realized vol and graph the two. you can then look at any time periods you would like (2008, flash crash in 2010, u.s. downgrade 2011, bull market of 2009, etc...
     
    #11     May 31, 2012
  2. TskTsk

    TskTsk

    What I'm saying is if most of the market is losing money, chances are I'll be losing money as well regardless of the strategy.

    And the no transaction cost and continous hedging assumptions of BSM are faced by both option sellers and buyers, so the surpluss IV (Seller edge) is not due to that.
     
    #12     May 31, 2012
  3. Jgills

    Jgills

    i know that those assumptions are faced by sellers and buyers, that wasn't my point. i still don't know what tenor you're considering and i was only trying to make you aware of the flaw in thinking there is "no jump risk because its 24 hours". it trades 24/7, but you're not there 24/7. and you know just as i know that when something hits the wire the market reacts instanteously, which is almost the same as a jump. go look at 5 min bars back in fall of 2011, would you have been able to be properly hedging your delta in there?
     
    #13     May 31, 2012
  4. "So, since index volatiliy is trading richly..."

    Funny because 10 days ago on Bloomberg Michael Platt of BlueCrest said volatility was cheap.
     
    #14     May 31, 2012
  5. newwurldmn

    newwurldmn

    Battle between two processes:
    Volatility clustering
    Volatility mean reversion

    JGills is right about the tenor. It matters a lot.
     
    #15     May 31, 2012
  6. TskTsk

    TskTsk

    I'm not there 24/7, but I can still have orders active on the exchange even if I'm not in front of the screen. It's called a market if touched order, not exactly rocket science.

    I also eyeballed the data from 2011, the worst I see is a 25pt drop in 30 minutes. In those 30 minutes I also see plenty of liquidity to throw market orders. Is that what you consider a 4% jump?
     
    #16     May 31, 2012
  7. Jgills

    Jgills

    ok. it seems you're ready. go put the trade on.

    i still don't know the tenor
     
    #17     May 31, 2012
  8. swag

    swag

    Forget the jump/gap, you'll lose on whipsaw on the delta hedge.
     
    #18     May 31, 2012
  9. TskTsk

    TskTsk

    You'd known had you read the thread before trying to educate me about your "transaction costs" and "4% jumps".

    But yeah Ill go put the trade on. And I'll watch out for those nasty "transaction costs", those things can really wipe you out.
     
    #19     May 31, 2012
  10. sonoma

    sonoma

    You'll have to run the analysis yourself, but it's easy to do. On average, you'll find that as stat vol increases, the relative spread between IV and realized narrows.
     
    #20     May 31, 2012