During outlier market days, what happens to volatility in terms of magnitude of expansion?
When trading products that are affected by implied volatility (like options), the key variable to keep track of is exposure to outlier losses. We know short options generally turn a profit until an outlier happens because IV contracts on average, and short premium trades tend to have high POPs.
However, since outliers are bound to happen and their size tends to be unpredictable, keeping exposure small to begin with is the only practical defense to keep a portfolio solvent.
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