Tag Archives | high implied volatility

It’s not Easy Being Disciplined

As explained by Kermit, "it's not easy being green."


Right now, I find that it takes real discipline to not get over-extended.  Implied volatility for the Russell 2000 Index (RUT), as measured by RVX, stands above 36. 

By historical standards, that's very high – and it's tempting to open positions with short vega.  For me, that suggests iron condors.  Although there are other strategies for traders who prefer something different.

The problem is that RVX was significantly higher – not too long ago.  Most of us recognize that implied volatility tends to be mean-reverting (moving towards its average level, after moving away from that level). 

As with everything else associated with trading, there are no guarantees.  I have a full plate and do not want to take on any more risk – despite the fact that profit potential looks attractive to me.

I may give in and add a very small number of iron condors to my portfolio, but I've decided that it's just not worth the risk to go 'all in.'  To succeed over the long term I believe it's best to give up some profit potential – after all, profits are not guaranteed – rather than take on additional risk.

We each have our own perspectives, and I'm sure some traders feel this is the calm before the volatility storm, while others seek to take advantage of these 'high' option prices.


Guess VXX closing price Jul 16, 2010.  Best guess wins subscription to Expiring Monthly: The Option Traders Journal.

If you are a subscriber, then best guess wins 3-month 'volatility essentials' from ivolatility.com.

Two prizes awarded:  subscriber and non-subscriber


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