Short Volatility

Because the losses when they occur are MUCH larger than the wins. Most traders underestimate this asymmetry. Win £500 ten times, then lose £6,000 once = net loss. The strategy requires excellent risk management to survive the inevitable large losses.

For iron condors on UK stocks, you need enough to cover max loss per contract (~£500-1,000+) plus margin buffer. For FTSE options, each point is £10, so a £500 max risk condor requires at least £500 margin. Never trade with money you can't afford to lose. £5,000+ is a reasonable starting point for UK options.

Generally close early - at 50% profit or by 21 DTE, whichever comes first. Holding to expiration maximizes risk (gamma is highest) for diminishing reward (remaining premium is small). The risk/reward of holding the last 50% isn't worth it.

Assignment means you must buy (if put) or sell (if call) the underlying at the strike price. For iron condors, your long wing limits this loss. For naked positions, you'll end up with stock/futures you may need to exit. Always have a plan for assignment.

Only on stocks with liquid options and reasonable bid-ask spreads. Illiquid options have wide spreads that eat into profits. Focus on major indices (FTSE) and large-cap stocks (BP, Shell, HSBC) with active options markets.

Iron condor = defined risk, lower margin, lower profit potential. Strangle = undefined risk, higher margin, higher profit potential. Use iron condors unless you have significant capital, experience, and discipline for undefined-risk positions. Most traders should stick with condors.

Options: 1) Roll the untested side closer (increase credit), 2) Roll tested side further out (reduce risk), 3) Close entire position, 4) Add directional hedge. Choice depends on thesis, time remaining, and loss tolerance. Don't wait until it's too late.

Short vol = short vega. When IV rises, the options you sold become more expensive to buy back, causing mark-to-market loss. This is temporary if price stays in range - the loss reverses as IV normalizes. But if IV spike is due to real risk, the loss may be permanent.

Track aggregate Greeks (delta, gamma, vega, theta) across all positions. Ensure no single underlying or sector is over-weighted. Maintain buying power reserve. Set portfolio-level risk limits. Diversify across expirations and underlyings. Don't add positions just because you have margin available.

Weeklies have higher theta per day but much higher gamma (risk). Monthlies have better theta/gamma ratio. For beginners/intermediates, 30-45 DTE is optimal. Weeklies should only be used by experienced traders who can manage the elevated gamma risk.

Multiple approaches: 1) Strict position limits (% of account at risk), 2) Portfolio-level gamma limits, 3) Tail hedges (buying OTM puts or VIX calls), 4) Systematic stops (close at 2x premium loss), 5) Diversification across uncorrelated assets, 6) Maintaining significant buying power reserve for adjustments.

There's no single answer - depends on risk tolerance and market conditions. Common approaches: 1) Spend 5-10% of premium collected on tail hedges, 2) Maintain delta hedges when aggregate delta exceeds threshold, 3) Keep permanent small long vol position (~10-20% of short vega). Balance cost of hedging vs survival benefits.

Low vol = low premiums but also less risk. Options: 1) Tighten strikes (sell higher delta) for more premium at cost of lower PoP, 2) Reduce position size (lower EV trades), 3) Wait for vol spike before new positions, 4) Consider other strategies temporarily. Don't force trades in unfavorable environments.

Both are short volatility, but variance swaps are pure vol plays with squared payoff (more convex). Straddles have gamma exposure that changes with price/time. Variance swaps are primarily institutional. For retail, straddles/strangles are accessible approximations of systematic variance selling.

Market makers dynamically delta hedge using the underlying, essentially 'gamma scalping' but on the other side. They're paying theta and capturing bid-ask spread. They also manage aggregate risk across thousands of positions, using sophisticated Greeks analysis and strict inventory limits.