When shorting options til expiration, does IV really matter?

Hypothetically speaking, looking away from black swan scenarios, say I short options at 70% vol, then it jumps to 80% vol, my mtm hurts, but am I right in assuming this wont matter, because the vol will reach 0 at expiration anyways, thanks to theta removing all extrinsic value?

 

In that scenario your only issue might be margin.

 

Unless you've been naughty and been delta-hedging...

 

because the vol will reach 0 at expiration anyways, thanks to theta removing all extrinsic value.

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think the naked short call guyz care about that...........?

ouch.......

d

 

What happens then? AFAIK if IV goes up so does theta/gamma. Obv. the increase in theta wont benefit you, but the increase in gamma will make you more losses per delta hedge...if I've understood correctly.

 

Well, then what matters is the vol that you're, effectively, realizing by delta-hedging.

Maybe I misunderstood your question... The only IVs that matter are 1) the one that you have effectively transacted at originally; and 2) the one that you have realized over the lifetime of the option (the latter would be 0, if the option expires and you haven't delta-hedged anything; non-zero, otherwise. If you close your position, it will be some combination of where you realized by delta-hedging and the level where you got out).

Or at least that's how I like to look at it... EDIT: I should add that I am often wrong.

 

if your option isn't ATM, then your delta will change.

So if you are short an out of the money put, and the market sells off and vol goes up. The delta will go up and you will have to short more stock to stay delta hedged (after the market has already sold off)

 

actually while theta does go up, gamma actually goes down...

 

I must have misunderstood something. Are you guys saying the delta hedges I make when IV is higher will lose me more money than the delta hedges I make when IV is lower?

I always thought gamma/theta were positively correlated. Higher gamma means higher gamma rent, thus higher theta...Now I'm even more confused, lol

 

This brings up the argument if you should hedge off of implied vol or forcasted vol..

If you dont hedge at implied,you will be taking a delta bet,(and quite possibly some nasty marks),but at the end of the day if your forcast on vol was correct,you should capture your "theoretical" edge..