I find it very difficult to deal with times where the market is range bound. There must be a way to make money in these times. Any suggestions ?

ehhhmm, gamma?

sell some premium and pray its not the lows in the VIX

QuoteOriginally posted by: daveangelsell some premium and pray its not the lows in the VIXDave, I agree, but the VIX keeps plummeting. When is it all going to end? These premiums are shrinking pretty fast. It's still a good gig, but I miss the fat premiums of old. We had a hopeful upsurge of sorts in the VIX last month, but then we promptly continued south. Even 15 on the VIX now seems challenging.In your view, do we have a decent predictor of where the VIX will be in 4 months? Is it possible the VIX is plummeting partially (but not entirely) because it has been a mediocre few quarters for hedge fund managers and so they decided to just sell a bunch more premium?Matthew

For every seller there is a buyer - so someone is paying for those options. I think the plummeting VIX is a function of the fact that the markets have gone essentially nowhere. Sector rotation is also helping to increase the dispersion. There is enough belief/hope in the recovery that cyclical are still holding up, surging oil is helping some of the energies, a moderately stable bond market is taking the pressure off the banks. There are still a fair number of people who believe in tech and keep buying those stocks on the dips. We are all in a wait and see mode re the US pres elections.

QuoteOriginally posted by: mdubuqueIn your view, do we have a decent predictor of where the VIX will be in 4 months?V + 2(A - V), where V is the VIX, and A is the volatility implied in a basket of options with 5 months until expiration?

QuoteOriginally posted by: daveangelFor every seller there is a buyer - so someone is paying for those options. I think the plummeting VIX is a function of the fact that the markets have gone essentially nowhere. Sector rotation is also helping to increase the dispersion. There is enough belief/hope in the recovery that cyclical are still holding up, surging oil is helping some of the energies, a moderately stable bond market is taking the pressure off the banks. There are still a fair number of people who believe in tech and keep buying those stocks on the dips. We are all in a wait and see mode re the US pres elections.Thanks Dave-My mild response to your statement that "for every seller there is a buyer" is that if comparatively more hedge funds have a preference for naked spreading (or covered writing) lately, then isn't one of the functions of a market maker to supply liquidity to the overall OEX market and to accommodate those recent trends in consumer preferences?My point, perhaps poorly made, is that in a sense the buyers and sellers can have different preferences in such a scenario. The preference of the institution (the sellers) is to somehow suck some yield out of a sideways market. But the preference of at least some market makers in purchasing those same OEXs is to supply liquidity and to subsequently hedge their positions rationally.And in that sense I was thinking that some of the information contained in lowered VIX valuation might also reflect increased selling pressure for those particular OEX options reflected in the VIX index.To some extent, this reflects my bias and strong sentiment that I would much rather sell premium than buy it. It's kind of a personal thing, but I just don't like buying time premium and haven't done so in decades. So perhaps my fear is that others are seeing the "wisdom" of my approach and that this bias and mistaken assumption is coloring my perceptions.Consider the following scenario. Ten friends of mine and I each have 70 million dollars to work with. All of us decide to short 10,000 OEX calls at the money every day for a week. These orders are placed in large blocks to make it interesting.My belief is that I think we could knock down the bid prices just a bit on these at the moneys, thereby reducing the value of the VIX. Am I mistaken? What if we had more cash?Restated, is it possible that prices of the VIX reflect supply and demand pressures on the underlying options as well as volatility alone?As a market maker, if I keep getting orders to sell 3000 at the money OEXs at the bid price, doesn't that act as somewhat of an incentive for me to lower my bid price?Thanks for responding, I do very much respect your opinion and value your response. I'm just trying to explain some of these numbers I'm seeing.Matthew

I personally apply a trend following system, but I know how frustrating it can be to wait these consolidations out. There are systems that can be applied in these times, but I tested them out and you need a very high hit ratio to profit from it. You need to find what works for you, and it seems as if you are also applying some sort of trend following system. Have a look at www.forextraderonline.com as I used this site to sharpen my skills and how to deal with the “need” to trade.

Why vols are low is a big macroeconomic/political/whatever question. What to do about it is: (drumroll) SELL OPTIONS!I have no problem selling cheap vol when it's just going to get cheaper. To some extent you can mitigate this with certain term structure positions, but the point is, get someone to pay you for hanging out. This will all be OK until Greenspan retires.To address the original post, learn how to manage a short vol (short gamma, whatever) position.

QuoteOriginally posted by: mdubuqueQuoteOriginally posted by: daveangelsell some premium and pray its not the lows in the VIXDave, I agree, but the VIX keeps plummeting. When is it all going to end? These premiums are shrinking pretty fast. It's still a good gig, but I miss the fat premiums of old. We had a hopeful upsurge of sorts in the VIX last month, but then we promptly continued south. Even 15 on the VIX now seems challenging.In your view, do we have a decent predictor of where the VIX will be in 4 months? Is it possible the VIX is plummeting partially (but not entirely) because it has been a mediocre few quarters for hedge fund managers and so they decided to just sell a bunch more premium?Matthew

Oops. I was trying to reply to:"In your view, do we have a decent predictor of where the VIX will be in 4 months?"The CBOE currently trades futures on the VIX. So, the February future, for example, is the marketplaces best guess as to where the VIX will be on February 16th. The current market of the VIX Feb future is 189.5 bid at 190.8 offer (or 18.95 bid at 19.08 offer, in vol terms).See http://www.cboe.com/cfe/products.asp for more info on the CBOE VIX and the CBOE S&P 500 Variance Futures.Also, VIX is no longer being calculated with OEX options. The CBOE is now using strips of SPX options to calculate VIX. The link above has more info on that as well.

Excellent Orion, very helpful indeed.Many thanks,MatthewQuoteOriginally posted by: orion56Oops. I was trying to reply to:"In your view, do we have a decent predictor of where the VIX will be in 4 months?"The CBOE currently trades futures on the VIX. So, the February future, for example, is the marketplaces best guess as to where the VIX will be on February 16th. The current market of the VIX Feb future is 189.5 bid at 190.8 offer (or 18.95 bid at 19.08 offer, in vol terms).See http://www.cboe.com/cfe/products.asp for more info on the CBOE VIX and the CBOE S&P 500 Variance Futures.Also, VIX is no longer being calculated with OEX options. The CBOE is now using strips of SPX options to calculate VIX. The link above has more info on that as well.