You don’t have to be smarter than them to exploit them, since they’re optimizing a different goal: keep their customers happy, instead of making maximum money for them.
Sell puts when implied volatility (IV) is higher than usual, on stocks where the IV tends to exceed the historical volatility (this is most of them, actually).
Whales have to buy puts for more than they’re really worth to protect their customers’ portfolios from scary market volatility.
Buy them back for less than you were paid for them when IV reverts to the mean. It’s like selling insurance. You have to control your bet size and hedge (maybe with a cheaper put, like reinsurance) so you don’t get wiped out when the disaster actually happens, but you’ll get more than enough premium to make up for your losses.
What trades does this suggest?
Sell puts when implied volatility (IV) is higher than usual, on stocks where the IV tends to exceed the historical volatility (this is most of them, actually).
Whales have to buy puts for more than they’re really worth to protect their customers’ portfolios from scary market volatility.
Buy them back for less than you were paid for them when IV reverts to the mean. It’s like selling insurance. You have to control your bet size and hedge (maybe with a cheaper put, like reinsurance) so you don’t get wiped out when the disaster actually happens, but you’ll get more than enough premium to make up for your losses.