ansbacher
- Thread starter man
- Start date
Well, I always do buy ATM/slightly OTM puts to hedge some of my Greeks, but never enough to entirely hedge if the price starts to immediately move against me. So spreads but pretty heavy on the short side. But when the price starts moving against me I hedge my deltas by selling the underlying (if i'm short puts of course) and/or start getting out of the position or buying some ATM stuff. I try and never let it get to the point where I have too much delta/gamma cause it can get reaaaally ugly real fast.
I think Ansbacher's fund size is about $120 mil now and is growing. There are other premium seller funds too. Add to that the possibility of others joining in to sell premiums, does that mean that we are looking at lower and lower premiums ahead up till a point that it is no longer mathematically viable to sell anymore? I understand that different funds will look at different products or strikes or have different strategies but they are all interrelated and the net effect of more sellers means premiums will get depressed, right? Just how big a fund size can the current market absorb without making a further dent on the premiums?
This is certainly an interesting point. I believe that many index based funds, be they hedge funds or mutual funds - use the purchase of protective puts to hedge their mostly long portfolios. Although there are about 15 - 20 premium sellers currently registered and reporting, I don't think assets total much more than 500mm in these funds. Ansbacher has 138mm and Vic N has almost 160mm, the rest are far smaller but growing. As these funds get bigger, it is certainly a concern. Most of these funds are also buying some contracts as partial hedges, similar to Dinn. I think as long as there is fear of the downside, there will be excess premium applied to OTM puts.
The overall option volume surged some 31% in 2004, and is on pace for 20% to 25% growth in 2005. I believe these percentage growth rates are much greater than those of the stock volume. As there are more and more players in the field, option trading will become more and more competitive. This is a sad fact of life. The only consolation is that the bid-ask spreads may continue to narrow.
Fortunately, a lot of people still think that premium selling is a very dangerous game.
Hopefully, we'll still have a few good years.
All good things must come to an end..........................Quote from omcate:
Fortunately, a lot of people still think that premium selling is a very dangerous game.
I also suspect some vix 50 periods will cull the herd. Anyone not hedged properly or failing to exert the appropriate level of discipline in that environment while selling naked will be taken out tits up.
When including all of Ansbacher's programs he has closer to 200 million trading.
The vxo is at decade lows for other reasons. Pricing models do not change very much so, relative to the market, options prices will not be 'cheap'. Interest in the stock market is now second to real estate so there is no volatility to drive premiums.
Firms which can adapt to volatility levels will continue to do well. Firms which cannot, such as ACE, will perform dismally - 4% for the year.
In order for an options market to be viable there has to be a substantial edge for the seller. Otherwise contracts will not be opened, liquidity will dry up, slippage will increase etc.
There is a danger with A. trying to fill 2000 contracts at a time and getting some serious slippage but there are firms on the floor which won't even trade for you unless you have at least 500 contracts to fill.
There is also fx on the horizon which has the potential to absorb enormous supply in the future both on and off exchange.
The vxo is at decade lows for other reasons. Pricing models do not change very much so, relative to the market, options prices will not be 'cheap'. Interest in the stock market is now second to real estate so there is no volatility to drive premiums.
Firms which can adapt to volatility levels will continue to do well. Firms which cannot, such as ACE, will perform dismally - 4% for the year.
In order for an options market to be viable there has to be a substantial edge for the seller. Otherwise contracts will not be opened, liquidity will dry up, slippage will increase etc.
There is a danger with A. trying to fill 2000 contracts at a time and getting some serious slippage but there are firms on the floor which won't even trade for you unless you have at least 500 contracts to fill.
There is also fx on the horizon which has the potential to absorb enormous supply in the future both on and off exchange.
If you short otm options, when should you hedge? When the market gets to the strike using delta? I know a market maker hedges using delta when the trade is being put on and adjusts, but what should a retail account do? Other things I have seen, close out one strike below/above short position, close out on a double or treble of premium.