so what is the reason for not reducing one of the biggest risks since is is so easily done?
any option sellers
- Thread starter phil413
- Start date
How do reduce this risk when it's fundamentally what you are selling.
I agree with you on that. But it does seem the vol funds that have lasted have done so by largely being relative value or layoff guys.
i do a few things. single stock specific event driven and some relative value. definitely tend to have a short vol bias.
i want to get more vol neutral strategies though. i'm working on it (albeit slowly)
Robert I could not agree more, I didn't intend to start a a great debate about trading philosphies. Trading is a very fluid business everyone has some mode or instrument they trade that works well for them weather your trading the ES, stocks, futures,comodities it's what ever works for you. Selling options either puts or calls either in vertical spreads or naked works for me that's just what I do. Not every trade is a winner but I'm not trying to convince anyone to sell or trade options I just was hoping to hook up with some fellow option sellers. Thanks everyone for your comments
rmorse
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Many prime brokers are becoming more risk adverse with reguard to option sellers. Basically, the Clearence firm makes less money and has more risk. (because some sellers never have to close their trades) They are increasing margin requirements on these strategies by adding a risk premium.
Good luck, trade well,
bob
I'm one of those free loaders who generally let the postion's expire lol, in most cases anyway, I agree with you on the margin requirements you're not going to sell premium with a 5,000 dollar ES account. You need enough size to cover the requirments and I keep enough back for a large safety margin and just in case I find a late bargin prior to expiration
thanks for the feedback
Nothing wrong with that.
Looking at it a certain way, I am on the synthetic short vol side of things a lot of the time, although only as a side effect of some passive order sizing, supporting a few specific microstructure games.
I am not sure what "net seller" exactly means. If someone trades term structure only (calendars of some sorts), is he a net seller or a net buyer? Even saying "net sellers of risk premium" does not say enough, though it says more.
From what I have seen, the guys who do really well over time are guys who do both, intelligently sell and buy risk premium. This does not mean that you could not retire selling vol if you have started doing it in 2001, but if you have picked a random point in time and ran a book for 10 years, your "bootstrapped" performance would not have been stellar (read - you would have blown up).
My model has always been to sell rich risk premium and protect myself with the cheaper one. Or, if I can find cheap risk premium, it's all the better. I do think that for someone with a small account the balance should be more toward selling risk premium (it is much easier to find overpriced capacity-constrained vol), but for anyone trading reasonably sized book it's not true any more.