Weekly Overpriced Options Reminder

• Posted by Adam Warner
• on September 10th, 2009

That pseudo-strength in the VIX on Tuesday? Gone like Amy Winehouse from Rehab as Wednesday blew by. The VIX in the low 24′s is within spitting distance of the 2009 lows.

But again, at the risk of sounding (more) like a broken record, even at these levels, options overprice realized volatility. The 10 day HV (blue in the lower graph) is of course very noisy, but it’s reasonable to say 15-16 is a good estimate of realized volatility over the past 2 month’s.

Hopes for a September options ramp were so pronounced all summer, almost just assumed. But so far, not so much. Until proven otherwise.

Which leads to another point. Don’t jump the gun net-buying options. It’s not like “averaging in” on a stock, it will just simply cost you money each day you own paper that overprices realized volatility, be it actual dollars or opportunity cost (if you get direction right, but pick the wrong vehicle).

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