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Volatility..time to chime in. When you write options hass nothing to do
with current implied volatility. By definition an option writer is
projecting lower future volatility. Additionally as many writers(who
are actually former writers have learned)an implied higher than
historical is no assurance of a "goood" trade. In any market EVERY
trade is volatility forecast. When you buy a stock...option..or future
your are in fact forecasting a price at a date forward of today. By
forecasting price you are actually creating an expected volatility. In
the last many weeks we have traders destroyed by sselling high vol..well
above historical...only to see it double. This is and looks like will
remain a market where implied does seem to fairly represent the sellers
risk(fat tails). Additionally you really have to decide are you trying
to sell volatility or are you trying to sell theta.........vol sellers
will make money almost alll the time....easily over 80% over long
periods. Thhe problem is the about 4 or 5 of the other 20%. The
analogy we use at seminars is the issue of unprotected sex. Better than
a 90% chance you won't be kiled,,,,,would you do it.
Just completed the yearly industry risk management conference. This
year the conference was held at the Doral in Florida and had over 400
folks in atttendence. The biggest topic of conversation this year was
the privatization of social security. We had presentatioons from the
folks who developed the system for Chile. They have joined with the
CATO institute to promote the idea worldwide. They have a website
at..ready for this...www.socialsecurity.org...really pissed off the
social security admin. but who cares. It is an interesting visit.
Abbey Cohan from Goldman also spoke and remains bullish with a Dow
Target oof at least 8700. She expects lots of vol. in interest rates
and thinks the bond will trade 5.550% - 6.25% the next year.
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