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There is indeed an error in what you descibe the correct sequence is: Buy 1 Call, sell delta Shares. Buy 1 Put, *BUY* delta shares. Sell 1 Call, buy delta shares. Sell 1 Put, *sell* delta shares. Those are the correct hedges if you actually wish to remain delta neutral.

Skew is the name we give to the shape of the volatility surface in any direction (both for strikes and tenors). In the futures space in general, the words contango and backwardation are used. Contango refers to a regime where the near dated futures are cheaper than the far dated ones...

In all honesty I have no idea what kind of position you are describing there (an example could be useful). However even without knowing the details of it I can tell you this with certainty: There is no such thing as systematic "income" generation from options, period. If you want to make money...

Juts a correction here, short puts don't have unlimited risk as the underlying can only fall to 0 in the worst case scenario. When I sell puts I always use European options to avoid assignment risk, and it is mostly done to extract skew from the vol surface (I hedge them neutral at inception)...

Ironchef, Natenberg, Hull, Sinclair are all very good writers and their books are fantastic. If you want something a little simpler about playing long gamma you could read this two simple sections: http://www.anixcorp.com/the-adventurous-gamma-trader...

You need to know at least what standard deviation is: http://www.mathsisfun.com/data/standard-deviation.html In finance they use the name of volatility for the standard deviation of returns (log returns more exactly). And it is an integral component of option prices. So when option sellers...

Ok so we mostly agree fair enough. I just want to point out that what you call bias is what I call a thesis. Also I want to clarify that the said thesis is opportunistic. That is, the thesis doesn't hold all the time for all underlyings. My whole point is that playing long gamma requires you to...

The optimizer uses real data from OPRA and the version on the web uses the Quantlib pricing engine (BSM for SPX and Barone,Adesi,Whaley for the american style ones). My comment about playing long term moves with options is mostly directed towards index options where the presence of a variance...

Man, I see you want to pick a fight where none is present. My point is very clear, short dated options (when compared with other ones, no matter the expiration) have higher gamma than longer dated ones. I have also said that LEAPS and very long dated options have very little to no gamma and...

I see where we are diverging here, of course gamma and all the greeks in fact, are irrelevant once the option expires. So if you are trading options with a view to let them expire then I agree with you. My whole point during this discussion is trading with a view of closing the trade way before...

Yes I agree, for a move in the 3 to 4 month time frame it is better to play the Sep options.

You are correct when you said that for me is all about gamma, after all gamma is what makes an option an option. Of course you are free to structure a trade any way you want, but that doesn't mean you are making an efficient use of the instrument chosen to implement the trade. Optionality...

Of course we agree on this point, my original post in this thread specified that you have to have a thesis first, and that thesis implies: Magnitude of the move, time frame and stopping point. There is no magic "system" or "strategy" all boil downs to having a thesis first and then looking for...

This is an interesting point to discuss and we can engage on it if you desire so. I advance the thesis that playing long "gamma" with long dated options is inefficient, as (for me at least) the only reason I would take extra risks in options is to enjoy optionality. And because long date...

I didn't intend my answer to be vague sorry about that, in fact I even posted a long gamma simulator that shows this effect in great detail and allows the person to play with different durations and moves. Of course the statement should not be constructed as every single OTM strike will always...

In general playing long term moves with options is always a losing proposition. There is very little optionality in far dated expirations and more vega risk. For short term plays ( days), OTM options almost always beat ATM ones both in percentage return and risk reward.

If you are using a pricing engine (like BSM) then all of those things are taken into account for you when you price the move (just decrease the time to expiration by the time that the trade will be open).

Ironchef, for point number 2, yes if you are a dealer you will lose the risk free rate on the option trade however because you sold it, the money you got from the sale will earn the risk free rate in your bank account, so you will come out to exactly zero.

Who doesn't ? :) I have been collecting all my experiences on option trading in a little web book. If you want you can read over the few sections that I have actually completed (I never get the time to write sigh) it is written with a different approach to the normal option books that out...

Fair enough, it is clear now to me. Incidentally, option prices do carry information about future expectations, in particular a binary call will be priced in such away that reflects actual probabilities (at least the ones the market is assigning at this time). Because Apple binary calls are...