Best Remote Options-Focused Prop Firm...

sle · Aug 12, 2012

Quote from pikerforlife:
what would reverse dispersion be? a bunch of iron condors on individual stocks with straddles/strangles on the index options?

Something along these lines
a. buy put options on the portfolio/index for 1 year, 10%-12% OTM
b. sell call options on the single names for 1 month, 5%-7% OTM
c. keep rolling (b) over every month for a few months and then liquidate (a)

The strategy is pretty involved and requires either some very smart ways of picking the single names or having very low execution costs on the single name vols. However, there are variations that can certainly be done on the retail level, requiring tame amounts of capital (e.g. $50-$150k) that would produce very nice ROC with a reasonable Sharpe ratio and low draw-downs.

Vol Guy · Aug 12, 2012

Well, I probably have more thoughts on the responses so far. But my observation is either that I am incredibly naive to believe the prop firms want to help me if I can help them. And that some people on these boards are less cynical than average and would like to be helpful answers. Some already have been. For those that have not, you know who you are.

For those that having nothing helpful to say, do me the favor of saying nothing at all. You guys know the difference.

LEAPup · Aug 12, 2012

Quote from 1245:

$100K is the SEC regulation. If you drop below, you revert to REG-T. IB allows $110K. Anything below $125 is not a good idea especially with a firm like IB that will auto liquidate.

Just a matter of time IMO before the fed raises reg t requirements... Pretty scary out here these days.

1245 · Aug 12, 2012

Quote from LEAPup:

Just a matter of time IMO before the fed raises reg t requirements... Pretty scary out here these days.

I think the SEC should not raise the requirement from $100k. Let's let the brokers manage risk. There is no benefit to the public to over regulate this. Most prime brokers require $5m that offer PM. Some allow PM with $1m and very few under $250k. Only a handful of online brokers have lower requirements and most of them clear Apex. Apex allows it because the correspondent puts up a security deposit to cover losses.

max1950 · Aug 13, 2012

another option is to just lease a cboe seat, really cheap now and find a local clearing firm , trade remote lower commision and lower margins, better haircut rates

1245 · Aug 13, 2012

Quote from max1950:

another option is to just lease a cboe seat, really cheap now and find a local clearing firm , trade remote lower commision and lower margins, better haircut rates

That would require starting your own broker dealer or joining one. The over head is quite high. You need an automated system to send out your quotes and a small infrustructure to be compliant with FINRA and SEC regs. it's not a place for small local traders any more. My best guess is a monthly over head of $10k before you do a trade.

jtrader33 · Aug 14, 2012

Any delta hedging involved? Just let the calls expire or roll before that?

Quote from sle:

However, there are variations that can certainly be done on the retail level, requiring tame amounts of capital (e.g. $50-$150k) that would produce very nice ROC with a reasonable Sharpe ratio and low draw-downs.

Ballpark for the ROC if this is done properly?

Vol Guy · Aug 14, 2012

Here's my thought. Sell expensive IV puts on cheap stocks (or ones that have recently been clobbered - but are basing). Create a deversified portfolio of these things (20 or 30 positions), and hedge them with long index puts. There could be several ways to do this, and I am not wed to any one strategy. If say, each put that is sold is a 25 to 35 delta, than the overall delta of portfolio is roughly half of that (it would be nice to have some decent anaytics to go with the strategy).

So my first comment of this being a reverse dispersion strategy isn't accurate. I figure 35% unlevered is possible, and double that is possible with 2:1 leverage. More than that is questionable. Remember that the risk in the strategy is really basis risk, as hopefully market risk has been adequately taken care of.

newwurldmn · Aug 14, 2012

Quote from Vol Guy:

Here's my thought. Sell expensive IV puts on cheap stocks (or ones that have recently been clobbered - but are basing). Create a deversified portfolio of these things (20 or 30 positions), and hedge them with long index puts. There could be several ways to do this, and I am not wed to any one strategy. If say, each put that is sold is a 25 to 35 delta, than the overall delta of portfolio is roughly half of that (it would be nice to have some decent anaytics to go with the strategy).

So my first comment of this being a reverse dispersion strategy isn't accurate. I figure 35% unlevered is possible, and double that is possible with 2:1 leverage. More than that is questionable. Remember that the risk in the strategy is really basis risk, as hopefully market risk has been adequately taken care of.

I think your return target unlevered (meaning all short puts are cash secured) are too high. Also have you considered the pnl volatility of a strategy like this and whether it would be suitable for a prop shop? Generally these types of strategies have sharpes closer to 1.

sle · Aug 14, 2012

Quote from Vol Guy:

Here's my thought. Sell expensive IV puts on cheap stocks (or ones that have recently been clobbered - but are basing). Create a deversified portfolio of these things (20 or 30 positions), and hedge them with long index puts. There could be several ways to do this, and I am not wed to any one strategy. If say, each put that is sold is a 25 to 35 delta, than the overall delta of portfolio is roughly half of that (it would be nice to have some decent anaytics to go with the strategy).

So my first comment of this being a reverse dispersion strategy isn't accurate. I figure 35% unlevered is possible, and double that is possible with 2:1 leverage. More than that is questionable. Remember that the risk in the strategy is really basis risk, as hopefully market risk has been adequately taken care of.

It is a form of reverse dispersion, no question about. I know people who do this sort of stuff, even. The return target looks totally unrealistic, I think your cash returns are going to be around 5-7% p/a and on average you are going to outperform in a selloff (assuming you are buying index vega and selling street gamma).