What are some of the best option selling techniques that you have seen? How can trading the VIX be incorporated into a premium collecting strategy while minimizing risk?
Right now my current strategy involves selling strangles on indexes(SPY, QQQ, etc) during periods of relatively high volatility. I want to start trading the VIX in collaboration with this strategy in order to add some alpha in both periods of high and low volatility. Any recommendations? Im open to hearing about anything! Thanks for reading!
No naked option selling would be preferrable. The risks and margin requirements are too high
My theory on this, which I havent verified with professional option traders yet, is this…
While there is an edge in writing stock index options, there is no/very little edge in writing VIX options. The reason is that stock index volatility trades at a premium to realised volatility. I have found no such relationship with VIX options. If you have a market timing edge in VIX, fine, but there is no additional tailwind that Ive found in VIX option volatility. My gut feeling is because either the skew is accurately priced, or because the main operators of VIX options are professional market makers who use VIX options to hedge their VIX products, not as ‘insurance’ trades like everyone else uses stock index options. I have never found or been able to backtest a strategy that can consistently sell VIX options without eventually giving it all back. Ive traded options for years both professionally and as a hobby. Id love if someone else here knew if this was correct, or can confirm a premium of VIX volatilty over realised VIX volatility.
thanks for the replies, good stuff!
It’s all nice, until it blows up over night and you lose everything, have you guys forgotten McProtrader ?