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THE DOCTOR writes in part . . .
"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."
Doc, while I enjoyed your piece and think it has a valid argument in
looking for going forward volatility, that wasn't the initial point.
The initial point was when one is looking to do a short strangle (or other
option selling strategy), the current volatility will drive the current
premiums.
What good would it do to sell options on a stock or index that has no
volatility and sonsequently the premiums are low? Can't make money like that.
G
PS Appreciated your comments on the industry risk management conference.
Thanks.
>
At 01:07 AM 2/1/98 -0600, THE DOCTOR wrote:
>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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