Silver as an investment

Planning To Sell Volatility? Goldman Explains Why It Will Buy From You / by Tyler Durden / Jun 28, 2017 3:50 PM

Other than buying Ethereum, one strategy has stood out in investing circles – selling US equity market volatility, and as Goldman notes, the profitability of vol-selling strategies has accelerated in the last year. With vol at record lows, and after a long-run of success, Goldman unveils its guide to selling volatility, why it’s a good idea, and how to do it.

Via Goldman Sachs,

We are increasingly asked whether flows into options and VIX selling strategies are pressuring options prices and dampening stock price moves. Indeed, when an investor sells an option, the Market Maker on the other side of the trade “delta-hedges” the portion of the trade where there is not a natural buyer. This “delta-hedging” dampens the volatility of the underlying asset from the time of the trade until expiry, all else equal. In this report, we explore the public data that is available to assess whether options and VIX ETP flows have the potential to contribute to the decline in implied and realized volatility. While a significant portion of the options market trades in OTC markets (where public data is sparse), we believe trends in OTC markets are consistent with our findings in the listed markets. In fact, based on our discussions with those that run systematic options strategies, much of OTC volume is recycled into the listed market and likely to influence publically available data.

Why are investors asking if options selling strategies are crowded?


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