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The point is not to buy strangles, or call/put spreads, or calendar spreads. The point is to find an edge. You have to have a reason to believe there's a better-than-random probability of something in particular happening. Once you determine that, you look for a way to play that with options...

Rudolf - read the attached article on gamma scalping then come back with any questions. This should clarify it for you.

Exactly correct. As for the computer code you posted - sorry, I can't read it. But the forward price is a simple calculation - you just calculate the continuously-compounded return using your interest rate and the time to expiration, add that to the spot price, and that's the forward price.

Remember that movie "Gremlins?" I used to trade with a guy who compared options to Gremlins - with a lot of time remaining they're these cute, adorable, harmless creatures. Then as expiration approaches, somebody exposes them to bright light. A few days later somebody gets them wet. And with...

I think he meant "putting on the wings" instead of "putting in the wings." In any case, the idea is to be long wings as a sort of "safety net" in case of a black swan event. There are other good reasons to be long wings as well.

Buying IN the wings implies you were short them. I think Cottle's idea is to be long the wings.

Is this what you meant to say?

I was the one who suggested "leverage," or "correlation." But that still begs the question - if your strategy is purely directional, why bother with options at all? If I understand correctly, you're VERY long when you're bullish and less long when you're bearish. If that's the strategy, what...

Keep in mind that your options model first calculates a forward price for the underlying, then calculates the option price off that. I don't know what interest rate you're using, but since the August expires soon, the forward price is just slightly higher than the spot price. The Jan 2010...

Again, this is just squiggles on a page. If you seriously want to establish a track record, I suggest you see a securities lawyer and have him set up your account as a fund that is audited according to standard criteria. Provided the results are as good as you say, you THEN will be able to...

Maybe you could just use the term "leverage," as in "My fund is leveraged 2 to 1 against the S&P500 - if the S&P is up 1% my fund is up 2%." Or make up a similar sentence with "correlates" or "correlation." I'm still curious how you determine sentiment.

Right. Think of it this way - delta describes the relation of your option position to the underlying. Beta describes the relation of the underlying to the index. Better to keep them separate.

How do you determine market sentiment?

An anomaly is anything that differs from the norm. In index options - the SPY for example - the IV of each strike is always lower than that of the strike below and higher than that of the strike above. So the lower the strike, the higher the IV. That relationship holds true day in and day...

Agreed. And I'm not talking about dispersion trading, which everyone agrees is not for retail traders. But if you're successful trading options it's probably because you figured something out for yourself, which means no off-the-shelf software is going to crunch the options and display the...

If you can find a volatility skew anomaly where the bid/ask spread is reasonably tight then yes, that can work.

A trade that worked well when I was in T-bond options was to sell premium Thursday before a significant Friday-morning economic number. Premium was usually pumped up in anticipation of the number. When the number came out it was generally a non-event, and premium would collapse. Then it...

Rudolf - what you want to find is anomalies in IV relationships. If you are familiar with the normal IV relationships between strikes or between months in certain stocks, and those get out of line for whatever reason (news, upcoming announcement, disruptions in that company's sector, etc.) you...

No kidding! Wow - and you made money off a snafu like that - amazing. How often does THAT happen? Still that's a little scary, and a cautionary tale indeed...

Long back month premium, short front month premium.