What should I trade when volatility is high?

Buy (or Go Long) Puts When volatility is high, both in terms of the broad market and in relative terms for a specific stock, traders who are bearish on the stock may buy puts on it based on the twin premises of “buy high, sell higher,” and “the trend is your friend.”

Is delta-neutral strategy profitable?

If you buy the underlying and buy put options so your position is delta neutral: When the market goes up, you have a profit on the underlying and you have a smaller loss on the options (because their delta decreased), so you wind up with a net profit.

Why should the trader maintain a delta-neutral position?

A delta-neutral portfolio evens out the response to market movements for a certain range to bring the net change of the position to zero. Options traders use delta-neutral strategies to profit from either implied volatility or time decay of the options. Delta-neutral strategies are also employed for hedging purposes.

Should you be delta-neutral?

As a rule, it is therefore best to establish short vega delta-neutral positions when implied volatility is at levels that are in the 90th-percentile ranking (based on six years of past history of IV).

How do you profit from high volatility?

Derivative contracts can be used to build strategies to profit from volatility. Straddle and strangle options positions, volatility index options, and futures can be used to make a profit from volatility.

How do market makers remain delta-neutral?

Market Makers are usually always delta-neutral because they are writing the options and making their money on the arbitrage between bid-ask or options quotes in different markets, among many others.

Is Iron Condor delta-neutral?

An iron condor is a delta-neutral options strategy that profits the most when the underlying asset does not move much, although the strategy can be modified with a bullish or bearish bias.

Is a high implied volatility bad?

Usually, when implied volatility increases, the price of options will increase as well, assuming all other things remain constant. So when implied volatility increases after a trade has been placed, it’s good for the option owner and bad for the option seller.

What is a good implied volatility number?

For U.S. market, an option needs to have volume of greater than 500, open interest greater than 100, a last price greater than 0.10, and implied volatility greater than 60%.