valueinvestor999

Do Black Swans Negate Option Premiums?

Surly Trade:

Thank you for reply. Yes I understood the S&P 500 example - it is an old strategy nothing new with it really- shorting options and delta hedging them
I just still did not understand the concept of going long realized volatility - for example the relative value trade between emerging and S&P500 is an implied vs. implied game as I understand not realized vs. implied (meaning you long emerging vol by buying options and shorting S&P500 vol by shorting them)
Statistically this is a sound idea - even CBOE BuyWrite Index outperforms plain S&P500 - but I think that the big problem lies in how you implement this strategy and "monetize" this difference between implied and realized - and it seems like not an easy task to do if possible at all because even conceptually it is very hard to understand what is going on

Do Black Swans Negate Option Premiums?

So to profit lets say from this difference - between implied and realized - one needs to establish:
- a short position in implied vol by selling options
- a long position in realized vol by buying options and delta hedge them with underlying asset ?
So how I make this difference if I bought and sold the same implied vol ?
Can you please explain or give an example of a position on S&P500 index for example which will benefit from this difference in volatilities

Thank you


n Nov 25 11:19 AM Surly Trader wrote:

> Purchase options and delta hedge them.

Do Black Swans Negate Option Premiums?

How do you establish a long position in realized volatility ?

The Salesforce.com Bubble is Ready to Burst

Agree with author 100% - company is unprofitable, valuation totally unreasonable (maybe, maybe would be justified if they would grow like Google, but they are not - it is CRM software after all), by the number of analysts and investor conferences they present at (can be found on their website) - they have very good marketing skills (and there are a lot, a lot of other profitable and even growing companies with similar market capitalizations and without such coverage). It is 100% SHORT.