Any traders in here who specialize in volatility skew and probabilities-based strategies?

destriero said:
A buddy of mine is short 5K of the Aug (or Sep, can't recall) 3000/3100 x 4600/4700 irons and he got crushed today even though vol obv dropped. He can't DCA (no cash), can't hedge (no cash) and refused to cover.

And yeah, it's a 22-23 million req.
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ouch thats painful.. i ate complete shit this past six weeks, i feel the pain, just nowhere near that position size.. eight figure vol trading sounds like a drinking problem waiting to happen lmao

i'm mostly synthetic ratios ATM, 90/35 delta bull spreads with 25 delta long puts to create that asymmetric r/r.. i like how they maximize probability of max profit to probability of max loss.. plus the hedged loss allows for a higher percentage overall capital deployment.. 1% chance of max loss, 35% chance of max profit, i like that lol...
 
destriero said:
So you convert the short straddle to a fly at an edge that results in a arb-fly... but you were up significantly on the combo anyway? Just cover it. I was short the bull synthetic straddle in TSLA and got cute and traded into a fly at a large credit. I was up twice the fly credit but with unbelievable terminal leverage. Guess what? TSLA projectile vomited a couple hundred points and it settled outside my wings.

I have done a lot of fly conversions as I learned the nuances from a famous trader at the CBOE when I worked under my dad's JBO. The caveat is that these guys weren't holding this shit for a week--they were buying the bid and shorting the offer. Sure, flow works both ways, but you can also afford to give up some edge to short the body when you just bought 400 wings at 60 cents in edge.

So my point is that there is no inherent leverage in conversion. How much vega is in a 10 lot straddle vs. a 100 lot fly?
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if i'm understanding you correctly, yes...

$10 call spread, cost $4.00, stock breaches short, roll down $2 to collect a credit likely around $1.10, sell eight $1 wide bear spreads at the short strike for $0.50 on the $1, bear spreads cover the initial trade cost, the roll down on the short locks in an arb profit, and the flies remain open as a potential risk free source of short delta on a major down move.. thats the only real reason to convert to a fly vs taking the spread off...

that's the idea, at least
 
Also consider babysitting LVLD bull diagonals when we go lower. As narrow as you can go while maintaining a small credit. 30/60 days, 45/90, etc. A lot of ppl don't understand the trade and you can't do it on the downside; as they blowup as we drop and they are shitty bull spreads (OTM puts diag).
 
okay, so i just realized there's a miscommunication... i'm running bull call spreads, not straddles...

a 90/35 bull call spread... stock breaches the 35 delta short, that's when i convert to a fly... i'm taking directional trades here

if it's negative vol skew then i prefer put ladder spreads, or even synthetic put ladders where i'm selling an OTM CC and buying put debit spreads against it... been able to set em up where you can take in more credit on the ladder than you'd get for the equidistant skewed put
 
destriero said:
Also consider babysitting LVLD bull diagonals when we go lower. As narrow as you can go while maintaining a small credit. 30/60 days, 45/90, etc. A lot of ppl don't understand the trade and you can't do it on the downside; as they blowup as we drop and they are shitty bull spreads (OTM puts diag).
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that's generally my strat on diagonals.. i use the synthetic ratios more, but i like diags for how adding the time dimension helps negate absorption risk.. i like narrow spreads for the efficiency in skewed vol environments, but i only like em as hedges, not as stand alone trades... that binary effects kills me lol
 
daytonabeach83 said:
if i'm understanding you correctly, yes...

$10 call spread, cost $4.00, stock breaches short, roll down $2 to collect a credit likely around $1.10, sell eight $1 wide bear spreads at the short strike for $0.50 on the $1, bear spreads cover the initial trade cost, the roll down on the short locks in an arb profit, and the flies remain open as a potential risk free source of short delta on a major down move.. thats the only real reason to convert to a fly vs taking the spread off...

that's the idea, at least
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Are you asking? I am referring to ppl shorting straddles and covering with wings on a drop in vol or time. They are dumb bc the intiial req make them a hobby trade.

TBH yours isn't any better as you're better off shorting futures and converting when at edge and a vol-line threshold. Or say a bull R/R and convert position into a synthetic straddled (put and call) condor. Verts suck as conversion legs as they are shit gamma trades.
 
destriero said:
Are you asking? I am referring to ppl shorting straddles and covering with wings on a drop in vol or time. They are dumb bc the intiial req make them a hobby trade.

TBH yours isn't any better as you're better off shorting futures and converting when at edge and a vol-line threshold. Or say a bull R/R and convert position into a synthetic straddled (put and call) condor. Verts suck as conversion legs as they are shit gamma trades.
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just trying to explain what i was doing, seemed like you thought i was running straddles lol

i agree with you there, i tried my hand at legging out of ICs/straddles and it was an exercise in futility haha

when you say a bull r/r and convert position to a synthetic straddle, i "think" that's essentially what i'm getting at... a bull spread r/r that i convert to a straddled condor by legging in after the upmove.. maybe i'm misunderstanding?
 
Yeah, I understood what you were doing. I wasn't referring to you when I mentioned shorting the straddle. I do recommend it to small books by trading the following. Long 50 shares; short 1 call; cover with wings on time or a drop in vol.
 
daytonabeach83 said:
just trying to explain what i was doing, seemed like you thought i was running straddles lol

i agree with you there, i tried my hand at legging out of ICs/straddles and it was an exercise in futility haha

when you say a bull r/r and convert position to a synthetic straddle, i "think" that's essentially what i'm getting at... a bull spread r/r that i convert to a straddled condor by legging in after the upmove.. maybe i'm misunderstanding?
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Short 25D put (or equal Px); long 25D call -> rally -> convert put to body of a put fly or condor leg and do the same to the call. Really it's little different than simply trading D1 and trading into the synthetic straddle.

I gotta get to bed as I am up at 4.
 
destriero said:
Short 25D put (or equal Px); long 25D call -> rally -> convert put to body of a put fly or condor leg and do the same to the call. Really it's little different than simply trading D1 and trading into the synthetic straddle.

I gotta get to bed as I am up at 4.
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word! i'm-a extrapolate on that tomorrow.. thanks for taking the time to discuss skew with me.. i learned a lot from some of your earlier posts, especially about reversal and conversion.. i was running a lot of hard collars against long stock in call skew, didn't realize till i read your stuff that i was using skew to do what the MMs do thru the bid-ask spread lol.. have a good one
 
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