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Stuart:
Please let me add my two cents. I would say that when measuring IV or
HV (historical volatility), a nagging question is how far back do you
go? Do you go back 5 days, 10 days, 20 days? Very difficult to answer.
In any event, if IV is low by historical standards, I would be an option
buyer since I would be betting that IV would go up. If IV is high then
I would be an option seller since I would be betting that IV would go
down.
This subject can of course be discussed forever and ever.
Regards.
> However, I am considering the following 2 strategies:
>
> 1. In times where Implied Volatility is low by historical standards (like now for example), buy a straddle. If the market sits still or continues to move up slowly, this position will get hurt, and should be taken off early. However, if as the E-Wavers suggest, the markets tops out, a decline in the S&Ps will send IV up hopefully enough to counter time decay, and price movement will send one half of the straddle into the money.
>
> 2. Assuming the e-wavers to be correct, sell extra naked calls at 1 sigma out of the money (again sigma is here based on Implied Volatility, not Historical Volatility). This position should work because:
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