Expensive doesn’t mean mispriced

Hey,

Lesson on Gold today. 

Gold used to trade 15–20 vol. Divide implied vol by 16 and you roughly get the expected daily move.

So 16 vol implies about 1% a day. Now we’re mid-30s. That prices roughly 2% daily movement.

But gold has been moving 3–4% a day. That is realised running above implied while implied is already elevated relative to its own history. Most traders look at 35 vol in gold and think “that’s high, I’ll sell it.”

That’s backwards.

When realised is printing 3–4% daily and implied is pricing 2%, selling premium is not harvesting decay, you are short instability which is priced high for a reason.

If you are going to sell vol, you first need evidence that realised is decelerating, not just that implied looks expensive compared to where it lived two years ago.

Expensive relative to the past does not mean mis-priced relative to the present tape. When realised runs above implied for multiple sessions, the decision is not “is vol high?” The decision is whether the current instability persists.

If you sell gamma here without that answer, you are not structuring risk - you are hoping for mean reversion with no real basis for it.

That’s fine. Just call it what it is.

On my desk, I won’t sell naked commodity premium while realised exceeds implied and the daily ranges are expanding; I will either structure defined risk iron condors or stay out entirely.

After realised compresses back toward what’s priced, I’m no longer trading panic, I can assess if the market stability is likely to persist based on positioning and vol surface behaviour using our THETA framework.