Volatility implosion. So whats the outlook

Discussion in 'Options' started by KINGOFSHORTS, Dec 22, 2008.

  1. All my options I wrote have imploded in value in the last few days (40+ percent)

    Do you think the volatility is gonna return after January? or is it going to be quiet the next few months. It was a good run writing OTM calls/puts the last few months.
  2. drcha


    Hi Shorts,

    I bet that it will return. Maybe we will have a little holiday quiet period. Then the new administration will come in and start saying things that swing the market hundreds of points this way or that. There is no growth, no lending, no jobs, no consumer confidence, no nothing. So it seems to me there has to be volatility.

  3. Here's what I know for certain:

    You have some very good profits and no one knows if volatility is going to 'return' soon. The markets are still fairly volatile, even if IV has dropped from extreme levels (but only half what they were in 1987, before VIX officially began).

    Consider taking those gains and looking for new positions that offer attractive profit potential, but which feel more comfortable to own.

    IV has come down so far that I've already closed almost all of my RUT Jan positions and have moved into Feb and March iron condors.

  4. If the rally gains strength in the form of institutional buying (re: heavy volume) the vix will come back down.

    If there are no <i>real</i> buyers - headlines will jerk this market with another vix spike or two.

    Markets are forward-looking, so we may already be on the upswing (re: watch institutional buying).

    Meanwhile. . .selling options can work very well!

  5. MGJ


    You could go short the VIX itself. There are VIX futures and VIX options. Here's a chart of the front month (F9) futures contract:

  6. That's a tough question. My longer-term map was for a solid rise off the November lows, a significant compression in IV, then a dump to a nominal "ultimate" low of around Dow 5K sometime between March and Summer in the kind of cataclysmic drop that will leave grown men crying in the trading pits.

    So my bet is that, yes, the "final" high in IV is still ahead of us.

    In case it matters to you, I have been putting my money on this pattern. Sold quite a bit of put-age back when the world was first ending (on things I'd actually want to own after the guns & butter stage, of course :) ) - and have been steadily rolling out as the market rose and IV collapsed. Other than a highly speculative play on GM, I expect to be pretty much all cash by AAPL earnings announcement in late January - if not sooner.
  7. tman


    I agree with you. I am mostly out of my January positions. I am going to wait before selling Feb verticals hoping to catch an increase in implied. Hopefully I don't outsmart myself.

    I am quite puzzled by the selloff in the NDX and corresponding decrease in the VXN. I try not to dwell on why, but wft???
  8. It's difficult to remember, but it wasn't so long ago that we would have considered today's IV to be incredibly high.

  9. bubba1


    And it "used" to be that a 2+% daily move made headlines . . .
    maybe little headlines, but headlines.

    I've been selling long dated puts on stuff I'd like to own, mostly the January 2010 expiration. I figured that if I took today's stock (underlying) price, picked a strike just below that, and sold puts when the premium was over 17% of the underlying price, and then combined the premium income with the cash I would have used to buy the stocks and put it into T-Bills, I'd be ok to just forget about it for a while. Half of it worked when volatility crashed. I never figured T-bills would go to not only zero, but less than zero . . . .

    Now what?

  10. I just finished closing all my positions. I will be going on a vacation so hopefully Volatility comes back Feburary :) I figure with the new administration etc.. new news events the VIX might trend up again.
    #10     Dec 23, 2008