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Overfitting is the process of introducing extra or changing existing parameters into your alpha function with the sole purpose of improving your back-test performance. It could be hard to avoid unless you are able to apply theoretical models.

If you are short, gamma is certainly working against you. You probably mean dGamma/dSpot being on your side since as you move away, your gamma decreases

Very interesting. Hope you don't mind if I follow

I am in a tent right now, so I can't check out the levels but I doubt the trade works with the current term structure anyway. As I said, I've tried this (an obvious trade, just like the bond/equity one) and found that it's hard to execute and does not really give you that bang per buck.

It's a bank while paper, do you expect wisdom from it? :) In short, this trade (a risky) flattens your vov vega, but your have to sacrifice the strike differential or do it ratio. Again, the issue of cake and the sexy baker comes up. It might work if you catch a very flat and low curve - just...

Well, it's the right way - sell them shovels, don't go digging yourself

Why not the other BRIC currencies? How do you trade the list, all in local listed futures?

You're welcome. This trade (long equity via long index calls, long bonds via short bond puts) worked very well when rates were higher, so we might be back to the environment where it makes sense. I'd just avoid doing it during the fed hiking cycle, bond/equity correlation breaks down a touch...

Sorry, I just had to quote this for posterity :) Just for the general education of the readers, put call parity relationship is defined as C - P = B*(S - K), so you can totally twist any way you like, which is what I did. It's a standard practice to trade delta against your options, including...

Simply that the futures reference for the put will be higher then the realization of spot and you will be a payer of that bleed. So it might get painful, see below for my thoughts on VIX put tails too. Also, I am pretty sure we've had sub-10 prints before 2008 and we had a 10.65 print on a...

Makes sense. What other EM currencies are you watching?

You said that most people buy OTM options. I am just saying that an OTM option is equivalent to an ITM option via put/call parity. For example, if you buy an OTM put it's also equivalent to buying an ITM call, you can convert them by simply trading stock against it. -- I was saying that your...

Then, unless your are buying really flat term structure, the roll down will kill ya :) This strategy is very similar to selling TLT puts when you felt you wanted to be long bonds as a form of protection. The key difference is that usually the forward drop as well as the skew is in your favour...

So lets say you sell puts in 10 names and the market gaps down 5% overnight on the expiration Friday (it has happened multiple times). Let's assume for simplicity that you only have names that have 1-beta with S&P 500 so all your stocks are down 5% too. Do you have enough money to cover the...

Yeah. Actually, Bear had a high number of competitive bridge players too - I know that Ace was one himself.

Would you have enough cash to get assigned on every position you have?

-- it's a derivative, if someone buys it, that means someone will be selling it -- you realize that every OTM option has an ITM equivalent simply via put/call parity? PS. if smallcapgrowth is really a former card counter, he should be looking for a proper institutional job, IMHO, not punting...

Out of curiosity, how are you calculating the total return on NDF pairs like USDRUB?

what do you think will happen to your obook if ALL of the underlying stocks move two standard deviations against you? How did your strategy perform in August 2011 or in September 2008?

Really, please do enlighten us why this particular form of free money has not been lifted off the side walk? -- the usage of the OTM expiration statistics. It's obviously a wrong metric. As an analogy, in case of Russian roulette, 83.33% trigger pulls "expire worthless" too. Instead, you'd...