Selling expensive IV

[XxQuote399]

Hello,

Is there a safe way to covered sell a expense IV option ?

For example a put is way too overpriced is possible to sell that IV ?

on that case is the put call parity that is tested ? I mean its best to use a risk reversal to that ?


If the put is too oerpriced like 40% more expensive than the call is a risk-free doing a synthetic position with a risk reversal ? All the premium diferential will be pocketed ?

 

[Martinghoul]

Hello,

Is there a safe way to covered sell a expense IV option ?

For example a put is way too overpriced is possible to sell that IV ?

on that case is the put call parity that is tested ? I mean its best to use a risk reversal to that ?


If the put is too oerpriced like 40% more expensive than the call is a risk-free doing a synthetic position with a risk reversal ? All the premium diferential will be pocketed ?

There are many ways to sell that vol... A synthetic isn't one of them. A risk reversal is, but isn't particularly great, as it implies a view on a few things other than the expensive put vol. You might want to look at some ratio put spreads or flies.

 

[XxQuote399]

Is there some way to be immunized against the spot/underlying price changes ?

 

[Martinghoul]

Is there some way to be immunized against the spot/underlying price changes ?

Delta hedge

 

[Retribution]

Hello,

Is there a safe way to covered sell a expense IV option ?

For example a put is way too overpriced is possible to sell that IV ?

on that case is the put call parity that is tested ? I mean its best to use a risk reversal to that ?


If the put is too oerpriced like 40% more expensive than the call is a risk-free doing a synthetic position with a risk reversal ? All the premium diferential will be pocketed ?

If you "write" a put you will have a specific delta, gamma, vega and theta position. You will be long delta as you're short a put, thus you can hedge this delta. You could do so by initiating a position in the underlying or going short/long call/puts.

High IV does not necessarily imply easy money though.

 

[XxQuote399]

Is not possible to do something about the difference of the price of the put in relation to the call for example the put being 60% more expensive than the call ?

Its cheaper to delta hedge via spot or via shorter/longer term options ?

 

[Martinghoul]

Is not possible to do something about the difference of the price of the put in relation to the call for example the put being 60% more expensive than the call ?

Its cheaper to delta hedge via spot or via shorter/longer term options ?

It is possible, of course, but it's complicated. Anything that you do will inevitably expose you to all sorts of factors that you may or may not want exposure to.

Moreover, you have to be very careful about your premise here. "Put more expensive than the call" is a pretty normal occurrence in equities. Is it the call with the same delta you're comparing your puts to? Sounds like you're trying to express a view on the put skew being too steep. But how do you know what steepness is too steep and not normal?

It's definitely best to delta hedge with spot, rather than options.

 

[dazza_71]

I seriously doubt that the put is 60% 'overpriced' to the call. are you looking at the money forward rather then spot strike? if you are correct however avoid risk reversal as it will give you almost unlimited risk. delta hedging needs constant monitoring and exposes you to shocks that will not only cost you in terms of delta loss but if there is a shock then your 'expensive' put option will be many times more expensive and you will be forced to close out your position at a loss.

please let us know where you are seeing this discrepancy.

 

[Retribution]

Is not possible to do something about the difference of the price of the put in relation to the call for example the put being 60% more expensive than the call ?

Its cheaper to delta hedge via spot or via shorter/longer term options ?

Dividends maybe?

If there's a large IV imbalance that is not affected by any deterministic factors it may well be a put/call imbalance. Sometimes "the market" expects a specific unidrectional move to happen. If it does, you will get killed on your short puts.