Short v. Long Volatility on OptionsSo many different types of option strategies
One useful distinction: are we long or short volatility?
In other words: does a large movement in the asset price help or hurt us?
Long VolatilityBuying CallsBuying PutsProtective PutsBuying straddles
Long VolatilityBuying Calls
580 585 590 595 600 605 610 615 620 625 630 635 640 645 650 655 660 665 670 675 680
-20
-10
0
10
20
30
40
50
60
70
Apple Calls
Long VolatilityBuying Puts
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100-5
0
5
10
15
20
25
30
35
40
Long VolatilityProtective Put
160 165 170 175 180 185 190 195 200 205 210 215 220 225 230 235 240 245 250 255 260
-30
-20
-10
0
10
20
30
40
50
60
TSLA Protective Put
Long VolatilityBuying Straddles
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100102104106108110
($10.00)
($5.00)
$0.00
$5.00
$10.00
$15.00
$20.00
Apple straddle
Short Volatility“Income” strategies:
Covered CallsSelling PutsSelling straddlesSome spread trades
Short VolatilityCovered Call
33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
MSFT Covered Call
Short VolatilitySelling Puts
3838.53939.54040.54141.54242.54343.54444.54545.54646.54747.54848.54949.550
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
Short VolatilitySelling straddles
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
-50
-40
-30
-20
-10
0
10
20
Short VolatilityDeep In/Out-the-Money spread trades
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
-20
-15
-10
-5
0
5
10
15
Long or short volatility?
