I think it's all semantics...long vol or long tails. Spitznagel does exactly what Cole does, sell ATM options in the near term to finance the long tails further out. There maybe a marketing benefit to calling yourself a long tail fund as your expected annual returns most likely will be negative and you can get away with that vs saying you are long vol. There is a tail ETF called appropriately "TAIL", where you can track some version of the strategy. It lost about 5% over the past 12 months while the S&P 500 was up 12%. The short stock ETF "HEDGE" was down about 6.5% over the same period.
Back spreads the Greeks and Nicholas Taleb
- Thread starter jordanwrong
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I think it's all semantics...long vol or long tails. Spitznagel does exactly what Cole does, sell ATM options in the near term to finance the long tails further out. There maybe a marketing benefit to calling yourself a long tail fund as your expected annual returns most likely will be negative and you can get away with that vs saying you are long vol. There is a tail ETF called appropriately "TAIL", where you can track some version of the strategy. It lost about 5% over the past 12 months while the S&P 500 was up 12%. The short stock ETF "HEDGE" was down about 6.5% over the same period.
judging by truetype's posts he is not in the industry -too busy telling everyone else what to do on ET (Elite Troll)
Okay so the more I read about Chris Cole the more interest I am getting in higher order derivatives. He states to be successful you have to except small loses in first order derivatives to gain a great deal of exposure in second/third order derivatives. I was using R to look at the dvega/dvol and vanna as well as speed (deriv of gamma) and its actually fascinating that when vol is cheap, these 2nd order and 3rd order derivatives are extremely high out of the money!!! Like why in heavens name would somebody sell otm options when vol is low? A spike in vol and a decent move literally will wipe you out!! People see delta is .1 and gamma is .01 and think they will be safe but speed is .40!!!. Astonishing to think about how many people will blow up when the next bear market hits, its really a shame what companies like TastyTrade and OptionAlpha has ingrained into retails heads (short vol).
I tried that, didn't work too well for me. My shorts often moved more than my longs and ended up costing me more.
This is not what they do. You have to consider skew and correlation to find value in the term structure. Shorting straddles and buying strangles is not going to work.
one of the many reasons I wish I could find a trading platform that shows higher order greeks. i'm lucky ToS shows delta/gamma/vega/theta/rho in an easy way. Not sure I'd be able to do much with the information but I've always wanted to watch the higher order greeks and how they move instead of just reading "here's what would happen if..." in textbooks
Niten, by finding value in the term structure do you mean finding things that are mispriced? How do they do this?
Thanks!
Yea I agree, people think the higher order greeks are useless. Gamma is a higher order greek and it is very very powerful. With R or matlab you can code a method to see the greeks move real time. Excel does this as well. Im with IB and they provide real time data to excel. I am sure ToS could possibly do the same thing.
Taleb had to leave Paloma due to buying down and outs. He went his entire career bleeding to death and retired shortly before Spitznagel made $300MM or whatever in the mortgage crisis.
VIX and varswap over 20. So the boat has left the dock.
The SPX APR/MAY 2500 put calendar is 24.00. May 2500P is 33.00. Spreading offers you a $9 credit over the outright. Vols are high enough that there is no loss to stickiness (ATM vol is same) and the ATM vol-line will be over 30 if we trade to 2500 before APR exp.
VIX and varswap over 20. So the boat has left the dock.
The SPX APR/MAY 2500 put calendar is 24.00. May 2500P is 33.00. Spreading offers you a $9 credit over the outright. Vols are high enough that there is no loss to stickiness (ATM vol is same) and the ATM vol-line will be over 30 if we trade to 2500 before APR exp.