Comment on Greek Interactions

Sachin Singh commented on 17 Apr 2018, 09:33 PM

1) While I do understand the concept of selling an option before a major event and pocketing the difference in premium later on, but wouldn’t the risk be very huge? Like I remember an example in an earlier module where one of your associates made big money when the election results were announced for 2009 on May 18th. My concern is what if someone had sold a CE option then? Wouldn’t the rise of the market be so huge that it would overpower the drop in volatility? I know that was probably an extreme case but the risk of market rising by 200-300 after an event and overpowering the volatility drop can never be ruled out, can it? How to overcome this?

2) If the implied volatility of ATM options are less compared to ITM/OTM options, then if one is looking to short an option strike before a major event, would it make more sense to short an OTM or ITM option? But I also read somewhere that one should never short ITM options?

Thanks in advance!

View the full comment thread »