If you are doing this at home, may your god be with you. Correlation trading, IV vs RV, cross-sectional relative value.
My first question is are your IV computations even correct? Do you know how to clean vols for time and events?
How extensive is your dashboard to see what @bennpeifert calls "disturbances in the force"? The data infrastructure for these strategies is expensive. You are trading for edges smaller than a bookie. Is your bankroll appropriately sized?
There is a good reason why most vol traders I know who go out on their own don't do "volatility trading". Instead they focus on more discrete bet types like special sits...@KidDynamiteBlog was epic demonstration...SPAC trading is another
3. Using vol flows to generate directional alpha
This is all the vanna stuff. It's relatively new as the option market "tail wags dog" effect has amplified in the past few years.
This wiki page is devoted to the awesome folks doing and writing about it
My own anecdotal experience is flows absolutely matter esp if options are priced too tightly ultimately providing more liquidity than the underlying. I've seen it in commods which is mostly the vol markets I trade.
The work of the people above systematizes the analysis and more accurately measure it than anything I ever did.
My own incorporation of it was understanding who held large chunks of OI and trying to anticipate players' behavior on how they might manage around the greeks...
Large hedging flows occur in oil and ags for example. Understanding their rhythm and triggers is important.
Certain areas of the surface become "infected". Again, I never systematized my analysis, but discretionary vol traders always have a mental framework around this...
I'd say follow them but 100% of the people following me for options already follow them. Efficient market.
The main takeaway is knowing the source of alpha you are using options to access.
If you ask me about a single stock option trade, I'm just going to ask you about your fundamental research. That's the hard part. If it's done well, the option part is comparatively trivial.
If you have an opinion on the vol, it better not be as naive as "well the realized vol is X or skew is Y".
You are pointing to info any donkey can easily see. Instead, you need a composite view which has seams nobody else can see.
So #1 isn't really about options. #2 is a game very, very few playing from home can play (@darjohn25 and a few in his sphere are people to follow).
For #3, you know who to follow.
Done with the real talk now.
If you think I'm wrong, I'm all ears. I'd be happy to be wrong.
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Explained to a learner in my DMs who underestimates the vega risk of a near dated option:
It's true that the near term option's vega is not large. But that is counterbalanced by the fact that near term IVs move faster (ie are more volatility then longer term IVs)
A 1 month ATM option has 1/2 the vega of a 4 month option.
But if the 1 month IV is twice as volatile it's the same vega risk.
Need to consider vega and the vol of vol.
(This is a doorway to a whole discussion about term structure and vega scaling but I'm not running down that stuff anytime soon...maybe @AgustinLebron3, @Ksidiii, or @volmagorov can thread one while sitting on a toilet)
When I was a Susq I heard Jeff speak a few times. Always engaging.
They were savage in my days there but the doubling down on tech and brains thru the years probably makes Jeff the richest dude in the world you never heard of (unless you look at pol donations, then you know)
One of the talks was on the primacy of markets (Yass is an extreme libertarian, free-marketer, no fool should be allowed to keep their money type. Appealing views to many traders, esp when they are young)
Delta hedging is a trade-off between transaction costs (direct+slippage) and risk reduction.
When you compute realized volatility you choose a sampling period, say close-to-close.
You can think of your delta hedges as samples.
If you and I delta hedge at different prices we are sampling different volatilities. C-C vol might not even correlate with our samples.
So everyone's lived experience of their attempted "market neutral" is different based on how their sampled vol compared with the implied.
This is why delta hedging is bedeviling.
It is the link between the implied vols you trade at and the subsequent p/l you realize regardless of what some objective measure of realized spits out.
Multiple people have reached out for the link to the house...dm if you want. Treehouse, bocce, heated pool, sauna, vineyard, sleeps 5 families, 3 acres.
I agree strongly with all the reviews...pics don't capture the expanse and beauty of the property.