Long Volatility

Long volatility profits from movement and IV increases (you buy options; pay theta). Short volatility profits from lack of movement and IV decreases (you sell options; collect theta). They're opposite approaches.

Yes! Long volatility strategies like straddles and strangles only involve buying options - no margin required. They're fully eligible for TFSAs and RRSPs.

Maximum loss is the total premium paid. If you pay $600 for a straddle, you can lose all $600 if the stock closes exactly at the strike at expiration. However, you cannot lose more than the premium.

When you expect a big move but don't know the direction. Buying both means you profit whether the stock goes up OR down, as long as it moves more than the combined premium you paid.

If the stock stays near the strike, both options lose value over time (theta decay). At expiration, if the stock is exactly at the strike, both options expire worthless and you lose the entire premium paid.

It depends. If IV has expanded significantly before earnings, consider exiting to capture vega profit and avoid IV crush. If IV hasn't risen much and you expect a large move, holding through might work. Many traders exit before to avoid IV crush risk.

Divide the straddle price by the stock price. Example: $6 straddle on $80 stock = 7.5% expected move. If you expect a larger move than this, long volatility may be profitable.

IV Rank measures where current IV is in its 52-week range (0=low, 100=high). IV Percentile measures what % of days had lower IV. Both indicate if options are cheap (low) or expensive (high). Many prefer IV Percentile.

Common exit triggers: (1) Profit target reached (50-100% gain), (2) Time stop (14-21 DTE), (3) Loss limit (50% of premium), (4) Catalyst has passed, (5) IV has expanded significantly (capture vega).

Straddle: Higher cost but profits from smaller moves; maximum gamma. Strangle: Lower cost but needs larger move; wider breakevens. Use straddle when expecting move from current price; strangle when expecting larger breakout.

Retail gamma scalping is challenging due to commissions and time requirements. Simplified approach: Hedge only at significant moves (e.g., delta reaches ±0.30). Accept that you'll miss some oscillations. Focus on capturing large moves rather than micro-scalping.

Compare IV across expirations. In contango (normal), far months have higher IV - standard long vol works. In backwardation (inverted), near months have higher IV - consider calendars or adjust expiration selection. Backwardation often signals stress or event pricing.

If realized vol consistently exceeds implied vol, long gamma is profitable even without net movement (gamma scalping). Track historical realized vol vs. what options implied. Long vol when realized > implied; short vol when realized < implied.

Allocate 5-15% of portfolio to long vol structures on indices (XIU) or correlated assets. This provides tail risk protection - long vol profits during crashes when equity suffers. Treat premium as insurance cost, not lost capital.

Key challenges: (1) Theta decay is relentless - most positions expire worthless, (2) Timing is critical - early entry means more theta paid, (3) IV crush can offset gamma gains, (4) Canadian options less liquid than US, (5) Win rate is low - need large winners to compensate.