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CDcaveman, maybe the lack of response is because it's unclear what the question is. Hedging options on futures with the underlying futures is pretty straightforward. What is it you'd like to know?

This is all really just "options common sense." I'll try to illustrate with a few examples. Let's imagine options on XYZ with 300 days remaining, no dividends and no interest rate, volatility of 30%. XYZ stock is at 100. The 100s (puts and calls) have a gamma of .015. The 110s have a...

Sure you can, but it's not free money. There are lots of ways to get short premium and delta neutral, and they all carry the same risks. You're short vega for one - you may think index volatility is rich now but it can get a lot richer. Take a look at a long-term VIX chart. And you're short...

The more time remaining, the higher the vega and the lower the theta. So if you buy back month options and sell front month options at a ratio that will make you theta neutral, you will be long vega. It's not perfect because IV of front and back months move independently. But I don't know a...

To calculate speed of your position at any particular moment is not enough - more important is to have a sense of what will happen to your position gamma as the underlying moves over a range. For that you should plot position gamma over a range of underlying prices using Hoadley, perhaps the...

Here are some important points surrounding gamma of gamma, in prose: The more time remaining, the more "stable" the gamma is, and the less quickly it changes as the underlying moves. As you approach expiration, gamma changes wildly as the underlying moves. Eyeball your position, and note...

I saw the same report, and also didn't know what they were referring to. Wasn't that the worst journalism ever? They say volume is severely reduced "obviously due to the events" without ever mentioning what the events were. Time for a J-school refresher course.

Let's say you offer a call at 1.00, and Joe Blow buys it. Your contract now is not with Joe, it is with the Options Clearing Corporation. Joe's contract is also with the Options Clearing Corporation. So if you go bankrupt and can't meet your obligation to sell Joe stock at the strike price...

You have to use the RIGHT underlying to calculate an option's implied volatility - not the one everyone else is using. There are arbitrage opportunities using puts, calls and the underlying. You can lock in profits and you can lock in losses. So you'd better be using the RIGHT underlying when...

Here are some differences: For ES options, it's as easy to short the underlying as to buy it. When you short ES it will never be called away due to a short squeeze or short-selling restrictions, which is not true of SPY. Difference in liquidity. Compare bid/ask spreads in the options...

Glad you found it valuable, and thanks for the kind words. I do teach some seminars at option prop houses for support personnel and trainees, which I like because nobody is expecting me to teach them a quick and easy way to make lots of money consistently with no risk. I've thought about...

Buy lower strikes and sell higher strikes at a ratio that makes you gamma neutral, then even up your deltas by buying/selling the underlying. Now you're long the skew and gamma and delta neutral. The ratio doesn't have to be 1 by 2 or 1 by 3 or anything even. Let the relative gammas of the...

If you have TOS you can click back through daily option prices for the past several years, although some here have complained about the accuracy of the data.

First, understand that for your purposes the price of an option is its implied volatility, not the number of dollars and cents you pay for it. Second, that IV can be too high or too low relative to the IV of another option on that security (violating the normal relationship between those two...

You guys are confusing yourselves with math. Go back to the basics. The BS assumes that the underlying moves in a random walk, and that the likelihood of the underlying being at any particular price at expiration is described by a lognormal probability distribution. The shape of that...

Right, they were ATM puts. My bad. That's funny about his failing to report the loss, especially since he made a big point in his letter to shareholders about how he would value the options using B/S pricing even though he disagreed with it. Add that to his shameless and very...

In his letter to shareholders, Buffett explains that due to the effect of inflation and retained earnings over time, the probability of stocks dropping over the long term is far less than the probability of stocks rising. Therefore, according to him, the Black/Scholes model produces "absurd...

In order to determine a "fair value" for an option, you have to first assign a probability to each possible outcome. Which is to say that if you're pricing an option on IBM, you have to determine the probability that IBM will be at each possible price at expiration. What is the probability it...

Google "jump diffusion option pricing" for an alternative model that takes into account the possibility of occasional major events where markets "jump" suddenly. As indeed they sometimes do.

Right. That's what Atticus was alluding to when he pointed out that the 18 put and call were just a nickel apart with the futures at 18.05. Think put/call parity.