atticus' "ship it" vol trading journal

taowave · Oct 17, 2012

Help me out here.
You get long the fly at 2.56 and kick it out at 2.75?

Interesting.I typically do not get long flys where I am risking 2.50 to make 7.50. I see most of you guys have no problem with that R/R.

Great thread.thanks

T

Quote from atticus:

Out 2.75 (2.82 mid) on the touch of 645.

atticus · Oct 17, 2012

Quote from taowave:

Help me out here.
You get long the fly at 2.56 and kick it out at 2.75?

Interesting.I typically do not get long flys where I am risking 2.50 to make 7.50. I see most of you guys have no problem with that R/R.

Great thread.thanks

T

Same day? Yeah. It was stopped on the underlying hitting 645. You don't get long flies risking $250 to earn $750? Why on Earth not?

taowave · Oct 17, 2012

In reality,I never let flys go to more then half the max profit.So my real R/R is really 1 to 1.

I typically trade flys as a cheap bet.I am in the AAPl Nov 50/60/70 for 50 cents..

Quote from atticus:

Same day? Yeah. It was stopped on the underlying hitting 645. You don't get long flies risking $250 to earn $750? Why on Earth not?

atticus · Oct 17, 2012

Quote from taowave:

In reality,I never let flys go to more then half the max profit.So my real R/R is really 1 to 1.

I typically trade flys as a cheap bet.I am in the AAPl Nov 50/60/70 for 50 cents..

OK, so you had the R&R reversed in your example. Anyway, I was risking 2.56 to make 7.44 (theoretically).

MentalTunnel · Oct 17, 2012

Thank you Atticus, for the exit reply.

I was wondering if you might explain how you manage a fly into expiration? With the large reward that can be earned in the last few days into expiration, how do you make the decision to close out the fly or to hold onto it with how quickly the value can change. I am basing it currently on how close it is to the middle of the fly day by day.

atticus · Oct 17, 2012

Quote from MentalTunnel:

Thank you Atticus, for the exit reply.

I was wondering if you might explain how you manage a fly into expiration? With the large reward that can be earned in the last few days into expiration, how do you make the decision to close out the fly or to hold onto it with how quickly the value can change. I am basing it currently on how close it is to the middle of the fly day by day.

I price all hard-delta bets (vertical positions) at wing-touches each day at +/- a small vol change. It's purely discretionary whether the tail-risk seems worth the hold. I also look at recent stat vol and will be less likely to hold a fly if it's printing successive inside days (or whatever frequency I am watching). There are a lot of moving parts in the process.

taowave · Oct 17, 2012

Sorry,I wasnt clear..

If someone pays 2.50 for a 10 pt fly,most feel that they are risking 2.50 to make 7.50.
The truth is,I almost never let a 10 pt fly go to more than 4-5 bucks.
So,the R/R ratio is misleading in my case as I am paying 2.50 to make 2.50(selling the fly at 5).

Do you ever hold 10 point flys when they get to 5?
I cant imagine you buying them there.

This has been helpful

Quote from atticus:

OK, so you had the R&R reversed in your example. Anyway, I was risking 2.56 to make 7.44 (theoretically).

justrading · Oct 17, 2012

Quote from atticus:

I price all hard-delta bets (vertical positions) at wing-touches each day at +/- a small vol change. It's purely discretion whether the tail-risk seems worth the hold. I also look at recent stat vol and will be less likely to hold a fly if it's printing successive inside days (or whatever frequency I am watching). There are a lot of moving parts in the process.

Thanks for this insight.

atticus · Oct 17, 2012

Quote from taowave:

Sorry,I wasnt clear..

If someone pays 2.50 for a 10 pt fly,most feel that they are risking 2.50 to make 7.50.
The truth is,I almost never let a 10 pt fly go to more than 4-5 bucks.
So,the R/R ratio is misleading in my case as I am paying 2.50 to make 2.50(selling the fly at 5).

Do you ever hold 10 point flys when they get to 5?
I cant imagine you buying them there.

This has been helpful

Understood. Sure, I would open a trade at a 1:1 fly risk on something like IBM for example. You can't qualify that without a vol or date (synth vol) assumption. I would also trade a GOOG fly at a day out (to exp) at 1:1.

taowave · Oct 17, 2012

I hear you..

I do realize it should probably be looked at in a theta/gamme realtionship as opposed to some "hard coded rule"..

Are you almost alway net flat options when short gamma?
Seems like everyone is long the wings

Quote from atticus:

Understood. Sure, I would open a trade at a 1:1 fly risk on something like IBM for example. You can't qualify that without a vol or date (synth vol) assumption. I would also trade a GOOG fly at a day out (to exp) at 1:1.