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So you're saying no alpha can exist otherwise someone would instantly harvest it and then it would be gone? Sounds like the story about the EMH proponent who claims there's no way a $20 bill could be sitting on the ground because someone would've picked it up already. There are a myriad of...

Less a few caveats; your expected PnL over a long time horizon is going to be the difference between the implied volatility you sold and what the realized volatility of the underlying is. You have to stop thinking of the profit as the total amount of premium received. Wider strangles will...

Should you get excited? Don't make emotional decisions outside of your trading process, but otherwise unequivocally yes. The REAL value of your account is now less than it was before trade inception. The REAL fair value of the options you're short is now much higher. The distribution of your...

The difficulty of this trade is the rate at which your gamma can gear up if the stock gets local to your strike. Retail can’t dynamically hedge that easily so rapidly picking up a huge delta position is a real concern. The negative skewness on this PnL distribution is awful. A month or two...

Yes, I will fit a worst case scenario to my trades. Usually options cap my max risk somewhere and the position size limiter comes from somewhere else before my capital at risk stops me. Sometimes a scenario is lucrative enough where I will trade uncapped risk, like ratio spreads in options...

In your personal trading how much leverage do you use? This is something I think about regularly. The three constraints I come across are personal utility/time horizon for capital allocation which produces an aversion to variance, being constrained by capacity/capital intensivity, and being...

Okay, thanks. That pretty much answers my question. Interesting that the backtest didn’t produce any noticeable difference between instruments. Since long bonds/equity (similarly short vol) has a moderately positive sharpe ratio vs. SR a lot closer to zero for constant one-way exposure to...

@globalarbtrader Rob, are you able to call up your realized sharpe ratio over the lifetime of running your system for each individual instrument? I was wondering what the realized sharpe is for VIX particularly, since there is risk premium embedded in the term structure. In the same vein I...

Guys, not everything daytona said is wrong; but a large part of the skew outside of disrupted markets is fair value, not an artifact of excess buying and selling demand. Options further otm have vega convexity; they will pick up vegas as IV increases. This convexity has value so the price of...

Yeah, long the stock would earn more at lower levels of notional leverage. The detriment of this strategy is obviously the huge fat tail. You mentioned running into margin constraints and having to buy back positions partially to avoid liquidation. Imagine trading this strategy outside the...

You take the expected value of the trade, the maximum risk of the trade, and your account value and you can calculate the size which will give you the highest geometric mean return. However if your figures are too optimistic following the KC will either give you suboptimal or even negative...

From what I've seen in SN over the past few years, I think edge loss is highest on otm wings going into expiry. Especially with recent rise in retail buying these. There are times when it feels like the MMs start getting full on short wings and begin over-skewing them to protect themselves...

Where is @Wheezooo when you need him :) daytona, have you backtested the performance of index puts vs calls when you actually hedge them to isolate the vol? You might be surprised at what you find. MAYBE you can make the argument that index vol itself is somewhat systemically rich. However...

It's good to see discussion about alternative strategies. First and foremost thanks for sharing. My concerns are similar to taowave. Do you have annualized return and volatility over a longer time horizon? What is the performance of your strategy spread against an equal volatility allocation...

@qlai When you lever up a strategy, discretionary or otherwise, beyond what the edge can mathematically support, you are widening your short-term distribution of outcomes and lowering your average terminal outcome. As time --> infinity all your equity paths will converge to the average...

I agree, harder to know where to put margin capital once markets calm down. A lot of vol has come out of the system. Any particular trades you’re favoring now that most things are dropping into a predictable contango? I was making a lot buying calendars and diagonals in disrupted equities but...

Good question to ponder. I don’t think there’s any silver bullet in the SPX/VIX complex though. Any attempt to reduce carrying cost on the hedge will also reduce its PnL when the bad times finally come. If you isolate the risks you really want to offset you can usually save a bit of money...

@robertSt if you pay attention to what these guys are saying you can really make some improvements here. If your risk adj return is better then you can run higher leverage on your strategy and make more money over time. Especially if you are compounding this will make a big difference in...

Garachen, really grateful for your contributions in years past. I got into trading on the wrong path (TA, useless stuff). But shifted gears after studying successful people and started seeking out what the market tends to give risk premium for. After finding a few minor tailwinds like levering...

How do you decide position sizing for unlimited risk structures like 1x3’s? Also what annual avg returns on net liq do you think are a reasonable expectation trading skew dynamics and trying to sell vol near a local max in single names? Seems like returns are hard to come by in SN unless I get...