No qualifying author-owned investment thesis was confirmed in this post.
no investment thesis: generic options risk question without directional view
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Came across this in a CFOA (Certified Futures and Options Analyst) prep question and it got me thinking:
You sell a put spread on an index in a high IV environment, expecting volatility to mean revert.
Market drops, IV expands further, and you roll the spread down and out for a credit.
On paper you’re still collecting premium and staying “defined risk”, but what’s actually the main risk you’re building over time if you keep doing this?
\* getting run over directionally
\* vega exposure from IV staying elevated
\* margin / capital compression as the position grows
\* something else entirely
Feels like one of those setups where it looks controlled but might not be in practice.
Curious how people here would think about it.