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Complex option strategy with superior risk-reward profile?
- Thread starter samer1
- Start date
Quote from quatron:
atticus, I think the OP just solved the strikes so that his expiration graph is in profit zone, that's not hard when using calendars and assuming constant vols. How did you come to your conclusion re bumps/boosts of the vol curve?
Sure, you're probably right, but easier to simply boost the vol on the what-if. Why bother even taking the time to solve for the optimal strike(s) and ratios when you can add 500bp to the back-months and across the strip.
I was stating there aren't any. If you're (samer) going to scam then use something less crowded than the QQQ.
Quote from atticus:
Sure, you're probably right, but easier to simply boost the vol on the what-if. Why bother even taking the time to solve for the optimal strike(s) and ratios when you can add 500bp to the back-months and across the strip.
I was stating there aren't any. If you're (samer) going to scam then use something less crowded than the QQQ.
I would love to hear somebody come up with a reasonable claim to exploit the volatility in this series or a similar one... Because this trade obviously is doomed
Quote from hedgeman:
I like the newer version risk profile. This appears to be a very safe trade set up but there has to be some trade-off. Perhaps, its the margin requirement or the return within a 5% range is not too great. I would also like to see how this risk profile looks with +/- vega and with the passage of time. You're making great efforts, I hope you can reply this message.
Thanks for the input, hedgeman!
The most important issue is to remember the correlation between underlying and volatilities. If the market goes up, IVs will go down. So this important. In the last trade structure, the vega is negative and delta is slightly negative. So if the IV falls, the market is likely to go up, which is no problem.
Should the IV go up, it implicates that the market is falling. In this case, the negative delta of the structure, will generate profits, which should compensate for the loss due to the negative vega...
However, please advise me on how to replicate a position in QQQ with MNX options...
Thanks a lot!
Samer;
your strategy is ratiospread+long put and call . You risk graph is good but you'll have problems with commissions and slippage even with the most liquid options of the market.
So it is profitable only on NDX or SPXPM (not even RUT) and you also need to make it work for at least 3 weeks, to offset the slippage haircut. This can't work on weeklies because spreads are wider on otm strikes.
To use it on NDX just plot it on risk graph and compare the numbers with QQQ. 1 NDX is about 40 QQQ.
your strategy is ratiospread+long put and call . You risk graph is good but you'll have problems with commissions and slippage even with the most liquid options of the market.
So it is profitable only on NDX or SPXPM (not even RUT) and you also need to make it work for at least 3 weeks, to offset the slippage haircut. This can't work on weeklies because spreads are wider on otm strikes.
To use it on NDX just plot it on risk graph and compare the numbers with QQQ. 1 NDX is about 40 QQQ.
@Samer: same concept, slight different legging on NDX. 3-5 days market exposure, enter thursday the week before the expiration week. Market makers tend to reduce IV on purpose the friday to compensate for weekend theta decay. The risk graph is a bit optmistic, market makers will eat a good part of the profit with their spreads. Only diago can work, far otm and itm long calls on weekly have nasty spreads, so the trick is to use next month were the spreads are not too wide on far otm and itm calls (or puts).
This works best with NDX : has best IV/HV historically on all liquid indexes VIX excluded, SPXPM can be used too for the strategy. All other vehicles should be ignored even RUT (more contracts to pay for, market makers a bit more annoying with fills than in NDX) or AAPL (a stock can move widely on unexpected events, american) or SPY (here you have to pay many contracts and american) or ES option futures (overnight rogue prints, american).
This works best with NDX : has best IV/HV historically on all liquid indexes VIX excluded, SPXPM can be used too for the strategy. All other vehicles should be ignored even RUT (more contracts to pay for, market makers a bit more annoying with fills than in NDX) or AAPL (a stock can move widely on unexpected events, american) or SPY (here you have to pay many contracts and american) or ES option futures (overnight rogue prints, american).