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Currently back month vols are higher than front month (at least in DAX index options) and I am having difficulties getting positive theta with additional long wings. My market expectiation is some sideways movement with a potential large sell off in the coming weeks. So a delta neutral long...

Hi everybody Some time ago I have read here the discussion about the "perfect option position": A butterfly in the front month combined with a wrangle in the back month This is supposed to be "perfect" because it combines limited risk with unlimited profit potential and positive time...

That's what I did. However, my model doesn't simulate the volatility curve. So I wonder whether there may be surprises.

Well, I will hold it to expiration if it goes down or stays flat. The volatility considerations come into play if it continues to move up: Because of the steep volatility curve, volatility should not drop for these calls if the DAX is moving up. If it is moving down, the short call is losing...

Currently I observe a rather steep volatility curve in DAX index options, which allows me to put on the following position for a net credit: Short 1 July06 5850 DAX option for 22.1 Long 2 July06 5950 DAX options for 6.6 => net credit 8.9 (DAX is currently at 5700 with 25% vol and 3 weeks to...

Since vol implosion is the standard behaviour after earnings come out, why not choose a pureshort volatility strategy and remove directional bias? Depending on the volatility curve between front and back month I would consider short ATM calendars or straddle/strangle swaps.

Well, that's actually the point, if you want to have some real protection before the event, it's so expensive that the risk/reward isn't worth to enter the position any more. Currently, my approach can be summarized the following: - Always buy wings - Far enough OTM such that probability >...

Hi all What's your favourite "crash-safe" short premium position? The last months were quite favourable for my bull put credit spreads. For the next 6 months, from a fundamental point of view, I expect a bumpy ride with quite some downside risk, since a lot of risk factors (inflation...

I wonder whether the variant trying to profit from component/index call skew differences behaves the same in this szenario: If you sell OTM component calls (not ATM straddles) and hedge with OTM index calls where the IV differences are big enough to show significant skew differences the total...

How about shorting the component calls and hedging with long index calls? If the weighting is right, the worst case of a strong upward move should cover the losses of the components. At expiration, you should earn the IV differences caused by the different skew. Is there a flaw in this reasoning?

Is it an advantage to use a narrow index dominated by a few companies or is it better to take a broad index? E.g. the SMI (Swiss Market Index) is dominated by 5 companies, which make 70% of the index together. If you take the biggest 10 companies, you get 90% of the index. Is it worthwhile to...

If you are reading everything he writes in books an articles etc., you see that it is really not a complicated strategy. He seems not even to use hedges, only a price stop. Why do people not believe that's all to his strategy? If he is diversified in different markets and has discipline, it...

Such a strategy should be fairly easy to backtest, provided you have the necessary option prices available. I remember having seen a similar backtest in McMillan's book "New insights on covered call writing" showing better results than buy and hold. Has anybody the means to backtest such a...

Why writing initially only half of the amount of puts and later writing straddles instead of alternating between puts and calls with the full amount? Is this intended to reduce risk? (such that you are only fully invested in the stock when it already has fallen some amount)

The problem with individual stocks is that they have much more fat tailed probability distributions than e.g. an index. The standard model can be quite misleading (e.g. 3 sigma moves happen quite often). If you want to use the probability distribution the market is expecting, you should use...

If you use IV and compute expected value you should get the fair option price value, that's how these models work. You only have an edge if real probabilities differ from the probabilities implied by the option price (or if you are an MM profiting from spreads). I use a conservative HV value...