You want to know why these people try to get newbies into a chatroom etc? $$$$$$$$$$$$$$$$$$$$$ nitro
The only option book I ever read was "How to take money from pros and MM on daily bases" , written by IV_Trader. Send my regards to Natenberg and others.
All right, let's stop picking on the poor kid, he will learn sooner. Book-reading argument aside, the idea of calendarising spreads to have vega pay for you gamma is a common thing. At the right time you can structure yourself a position with both positive gamma AND positive theta. Of course, there are trade-offs, but for event-trading it's a great thing.
thanks for a good advice , daddy ! As one family member to another , I can tell you a little secret ; I could not care less about the skew , I trade pattern of behavior of IV before and after event (like EPS report). Many events are at the week of exp , and that's why IV calcs are so important to me. I really don't get where is your sarcasm coming from , but hey , we just kidding around on the weekend , right?
Ok, so you are trading the forward vol (not sure which way, so far). It's a pretty common strategy, for instance, I do something like this on the NFP dates - buy the event ATM and sell the wings a couple weeks after. You get the advantage of both the realized vol for the event and the selloff in implieds after the event has passed. Btw, I was not sarcastic, I truly do believe that you might learn stuff from these discussions, esp. if we stop picking on you.
I cannot believe I am injecting myself into this mess. There is no such thing as fake vols. The reason the IV's are rising going into expiration is because of time! If you have an earnings event the week of expiration, the OTM options are going to stay bid. For example. Stock is at 32.50 on Monday the week of expiration. Earnings come out on Thursday after the close. The front month 35 calls and 30 puts are trading .30 bid at .40 offer. Let's see this represents a 45 vol line. Now Tuesday rolls along, the stock is unched and these same options are still .30 bid but now the vol is 48. This is correct! It's not a fake vol. Vol is a function of time. If you decrease time and maintain price, implieds go higher! Very simple. The reason for this is, MM's are not going to drop these options everyday going into earnings. They are going to offer these at .40 all week going into earnings. If there were no earnings this week, they would be dropping every day. By wednesday they would be .05 bid at .10 offer. But they are not because of the earnings report. By the time Thursday rolls along, they will still be .30 by .40 with a 60 vol!!!!!! Yes, the vol went up because time went down. Basic math folks. These vol numbers are absolutely correct but they are somewhat of a misnomer, because what the vol is really measuring at this point is gamma, not vega, as there is no vega on options during expiration week. I can't believe this thread got so off track. So to reiterate, there is no such thing as fake IV's.