Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

ChimpTrader

Gauge upcoming high volatility

Recommended Posts

Hello friends,

I am relatively new to options trading - slowing eating like pigeon by doing some writings. For but obvious reasons, I do not intend to do the other like an elephant, so, was wondering if any experienced good soul out of you would kindly explain any technique or indicator using which I could gauge an upcoming high volatility situation for an underlying beforehand.

Many thanks!

Share this post


Link to post
Share on other sites

Have you looked at tweaking  https://www.incrediblecharts.com/indicators/chaikin_volatility.php

Basics =

On charts:

- statistically speaking, nothing has been found in markets that comes closer to following linear cycles than 'volatility'

- statistically speaking, sideways ‘congestions’ are followed by ‘volatility’

- statistically speaking, narrowing ranges are followed by expanding ranges

“statistically speaking” means these indications give no "gauge" / information about the size of next move or the risks involved... only that ‘activity’ typically follows ‘inactivity’

ie-with options, nothing (outside of astro) is reliably predictive of the variance of the next move...

ie with buying options, you have to figure out a way to play all the major waves in order to be there for the outliers

ie- hope you’re writing ‘insurance policies’ into screaming volatilty instead of buying them in dead volatility... who makes money ?  the insurer or the bozo who buys policies left and right... took taleb years to figure that out and he’s a pretty smart cookie... sorry  - off topic now.... and congestion time is due to end :)...

hth

Share this post


Link to post
Share on other sites

Ha ha ha, yeah, the man who could only predict anything was crucified 2000 years back :D

Sorry for replying late I was in a pressure cooker :)

On 9/10/2018 at 8:10 PM, zdo said:

hope you’re writing ‘insurance policies’ into screaming volatilty instead of buying them in dead volatility... who makes money ?  the insurer or the bozo who buys policies left and right... took taleb years to figure that out and he’s a pretty smart cookie... sorry  - off topic now.... and congestion time is due to end

Statistically writing when volatility is unusually high makes Vega calm her wrath and premiums are lost faster as volatility subside, and I avoid low volatility, because you never know, although 70% of the time markets remain consolidating, but still why take risk, when some another Stock, ETF or Index is ready to consolidate.

After 2 years of pure options trading, nothing ever gives me any confidence to buy options no matter what a situation might be. I find this really strange, where the world is going crazy to throw their chips at cheap OTMs, some folks bragging in Social Media - how they bought limited edition Porsche in a week :angry:

Having that said, I am aware that I haven't seen any knee jerk volatility yet. I was in High School in 2008, used to see some Senior folks crying after loosing, it cautioned me and I took my time to learn things, got settled with a job first, then started to trade from 2015.

Your analogy was great, man! Would you kindly elaborate when you say:

On 9/10/2018 at 8:10 PM, zdo said:

ie with buying options, you have to figure out a way to play all the major waves in order to be there for the outliers

Thanks! Will wait for your reply......

Share this post


Link to post
Share on other sites

chimp

re: "ie with buying options, you have to figure out a way to play all the major waves in order to be there for the outliers"

This was just basically restating the previous point in that post.  ‘with options nothing is reliably predictive of the variance of the next move’.  Going back to the insurance analogy - time gaps without  ‘coverage’ is not a good idea. Boils down to the same problem as Nassim and all options players have - how to afford ‘coverage’ on everything so you can be covered with the darkened swan does show up ... to cover all the costs and turn a profit

Example:  (and, btw,  I can’t remember all the specific and details... anyways...)mid 1986, in addition to day trading big Spooz, bonds, etc, I started trading options ‘on the side’.   In feb 87,  using a ‘system’ (ie it wasn’t on a ‘whim’), it bought way out the money soybean calls and made a killing...  thought I was an options trader!  So I 'followed’ the system forward and it missed several significant moves ... it ‘reverted’ ... whittled away at my ‘killing’.

Long story short - I concluded that properly priced options ALWAYS screw the  premium buyer PERIOD.   So, I stopped buying premium but continued selling premium in treasury, etc options... got deeper and deeper into the time consuming greeks ... and had less and less fun ... and then I became not an options trader :)  ... I love leverage.  But turns out it’s steady leverage I love... and not variable leverage in a 'actuarial world'...

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×

Important Information

By using this site, you agree to our Terms of Use.