No, there is no such thing, even high implied vol can get higher, just look at LEH sep options if you don't think so.
BTW, I bought back some options in LEH sep at IV 140 which I sold somewhere around 105 IV, still made money though
Market makers are smart. I trade FOP on the ES. Spreads are such that the market value of an option lies about in the middle of the bid/ask spread. And believe me, the spreads are wider than I like. I have noticed that if a small trader places a small (1-5 contracts) limit bid inside the spread, that is the trade to take on. In general, I find that puts are overpriced when VIX is rising--people pay any price for protection. When VIX is low, then calls tend to be overpriced, for the greedy trader will pay any price for speculation. I can remember in 1999-00, I did covered calls. The call premium was about 20% of the share price at the time..make a lot of money..would have made more if I didn't cover and just followed charts. I remember two trades, for example. I bought 300 shares of NITE @100 and sold 3 calls @20. Easiet $6K I ever made. Of course the stock went up to 200 during the period. Another one: Bought 200 shares of QCOM at 200 and sold two calls at 40. Easiest $8000.00 but, of course, the stock sailed to 800. So, to summarize, rising, high VIX=overpriced puts and sinking, low VIX=overpriced calls. When the market is trendless or steady VIX, market makers control absolutely.
Historical Vola Vola Cone High Low Vola Vola Spread Here is some reading that may be of some help. Wish you all the best. www.ivolatility.com
Well said opt. As usual this topic has been talked to death here for a long time. Trying to give an objective answer in defining a subjective phrase is ridiculous.
Look at ticker MR (Ivol.com). I wonât go into details, but itâs a perfect example of âoverpriceâ ( by about 1k bp) IV
Overpriced is difficult...why? It has to do with supply and demand...your estimation of the volatility (absolute and relative), bid/ask, etc. For example, a QQQQ call is trading at an Imp. Vol of 25 but you think it should trade at 24 you will start selling it till the Imp. Vol has dropped to 24. 2nd, The skew has a nice curve but one strike is off because there are a lot of buyers, you'll sell till skew is ok and you will try to close it (or other way around) 3rd, during the close a market maker (firm) has a position that is to big so they will try to close a part or will hedge it. What happens, they will adjust there prices so people will trade it. 4th, European options trade on a slightly higher Imp. Vol. when the US markets open (uncertainty what will happen), after 30m they will go down etc etc etc but trust me..as a retail investor options are never over- or underpriced. A market Maker will never let you trade it. If you have a 50 million euro/USD and a supercomputer you are able to trade over- and underpriced options. It's a game controlled by computers.
The best way that I check if an option is overpriced or not is to look at the IV chart. Now, of course this is relative. When IV is within its low range, this is considered relatively cheap. And when IV is in its high range, it is considered relatively expensive. The reason why when IV is low your option is cheap has to do with vega. Each point that IV goes up, your option goes up by the vega amount, lets assume .20. So if IV jumps up by 10 points, your option premium will gain $2.00, even without price movement. So, in essence, that is why when IV is low, it is considered cheap because it has the potential to go up in value as IV rises. Jun www.tplinvestment.com