19 lines
1.1 KiB
Plaintext
19 lines
1.1 KiB
Plaintext
5. Realized Volatility Remains Constant,
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Implied Volatility Remains Constant
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This volatility chart pattern shown in Exhibit 14.6 is typical of a boring,
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run-of-the-mill stock with nothing happening in the news. But in this case,
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no news might be good news.
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EXHIBIT 14.6 Realized volatility remains constant, implied volatility
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remains constant.
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Source : Chart courtesy of iVolatility.com
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Again, the gray is realized volatility and the black line is IV.
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It’s common for IV to trade slightly above or below realized volatility for
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extended periods of time in certain assets. In this example, the IV has traded
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in the high teens from late January to late July. During that same time,
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realized volatility has been in the low teens.
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This is a prime environment for option sellers. From a gamma/theta
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standpoint, the odds favor short-volatility traders. The gamma/theta ratio
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provides an edge, setting the stage for theta profits to outweigh negative-
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gamma scalping. Selling calls and buying stock delta neutral would be a
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trade to look at in this situation. But even more basic strategies, such as
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time spreads and iron condors, are appropriate to consider. |