cool...only weeklies and zero history. Not much to be honest...except that I would buy gamma in the shorter timeframes, since it's cheaper vol wise
Cool option plays
- Thread starter guru
- Start date
Quickly looking at the position,you are basically long one put backspread with a mismatch in duration( short Jan upper put,long 2 June) financed by selling 10 longer dated September garbage puts(90 buy write,why not be short put)
Ignoring the embedded calander/ diagnol you are in the 330- 90
1 x10 ratio put spread..
Why??
Ignoring the embedded calander/ diagnol you are in the 330- 90
1 x10 ratio put spread..
Why??
Last edited:
No need to even try to name this stuff. I’d go bananas trying to name stuff I’m looking at every day
Though indeed I often also try fo simplify them, convert put spreads vs call spreads, synthetics vs non-synthetics, etc, to try to understand what I’m actually looking at.
No idea, unless I was bored, wanted to amuse myself, and post something that I’m not trading, lol.
But those are the questions I’m also trying to answer every day when looking at variety of setups, as well as a way to hedge my portfolio. So I simply have to review variety of setups every day, play, test, learn and try to understand them myself, and discover stuff.
In this case I was just running some tests and reviewing various setups while developing methods to hedge my portfolio.
Sometimes I may own too many cheap puts so my system may suggest some way of hedging by selling other cheap puts while not adding much risk, if any. You probably seen videos where AI also does weird stuff and finds weird solutions to non-trading problems, and people discuss them or point out clever solutions vs weaknesses and overfitting.
So my example also doesn’t mean that it is a great trade, but I have to look at everything before making decisions and also ask “why”, besides “what’s going on in here”.
So this combo showed up as a weird one that somehow manages to be profitable on vol going up, before losing money on further vol spike. It’s rare to see such behavior so I posted it, while also thinking “why” and “how” and “wtf”.
It’s hard to find any ratio spreads that don’t lose money on an immediate vol increase (unless you can provide better examples).
And I just wanted to post something that looks interesting because I thought people like to be stimulated and discuss shit, especially that not much is going on in the options forum.
Now your turn to post something more interesting
Last edited:
Of course there is a point..You are in a 1x10 spread, 240 points wide,short nuclear puts 1 year out..And why be in the 90 buy write??
Are you using a decent screener?
Are you using a decent screener?
No need to even try to name this stuff. I’d go bananas trying to name stuff I’m looking at every day
Though indeed I often also try fo simplify them, convert put spreads vs call spreads, synthetics vs non-synthetics, etc, to try to understand what I’m actually looking at.
No idea, unless I was bored, wanted to amuse myself, and post something that I’m not trading, lol.
But those are the questions I’m also trying to answer every day when looking at variety of setups, as well as a way to hedge my portfolio. So I simply have to review variety of setups every day, play, test, learn and try to understand them myself, and discover stuff.
In this case I was just running some tests and reviewing various setups while developing methods to hedge my portfolio.
Sometimes I may own too many cheap puts so my system may suggest some way of hedging by selling other cheap puts while not adding much risk, if any. You probably seen videos where AI also does weird stuff and finds weird solutions to non-trading problems, and people discuss them or point out clever solutions vs weaknesses and overfitting.
So my example also doesn’t mean that it is a great trade, but I have to look at everything before making decisions and also ask “why”, besides “what’s going on in here”.
So this combo showed up as a weird one that somehow manages to be profitable on vol going up, before losing money on further vol spike. It’s rare to see such behavior so I posted it, while also thinking “why” and “how” and “wtf”.
It’s hard to find any ratio spreads that don’t lose money on an immediate vol increase (unless you can provide better examples).
And I just wanted to post something that looks interesting because I thought people like to be stimulated and discuss shit, especially that not much is going on in the options forum.
Now your turn to post something more interesting
Working on my own screener and hedger that will dynamically hedge my portfolio. But this isn’t even related, just during development I have to catch issues and look at thousands of setups. I could post thousands more of them here, but wouldn’t be able to justify most of them either.
On this one (2nd one I posted), max risk is equal to 200 shares. You could shape this structure by decreasing the number of hedging shares by 200 if want to be bearish and having no downside risk. And it’s not for a stock you know nothing about (like market makers), but specific stock traded with risk.
The shape and “shapability” of this structure’s P&L looked intriguing to me, and interesting to play with. Also mild pre-earnings-type vol could make it work, while people easily bet 200 shares on earnings, or sell 2 naked puts or calls.
Anyway, ok, not a great trade.
I won’t be posting thousands of others either.
Last edited:
@guru great thread. Never looked at DOTM strangles for such positive Vega play. Got couple of questions. Hoping you can answer them.
1. Seems like you are doing positive theta play to offset the cost of the positive vega play. In your experience, if done in low IV environment, does the positive vega return outperform the return from the positive theta play? What if IV jumps within the time that you need to profit from the the theta play? I am wondering, if you make consistent profit from the theta play, why do this structure.
2. Do you start with the DOTM wings from the very beginning? Or do you arrive at the final structure through some combination of other spreads that you do to generate the positive theta.
Not looking for the secret sauce. You already mentioned the semi-fly plus dozens of other positions. Any other pointers will be highly appreciated.
Thanks.
Re: 1
That’s a different topic then originally in this thread (fun examples to explore), but sure. I’ve had mixed results with actual setups that I trade and I’m still practicing being long Gamma vs short Gamma in effort to get a feel of how both concepts work, with short Gamma often being the natural result of some long Theta and Vega plays. On $COIN and $NFLX I made very nice profit from theta as they didn’t move much in months, though I could’ve been lucky as my wings weren’t tested. On many other stocks with similar plays I’m “fighting” by adjusting delta and trying to break even, so the wings only help provide a hedge but not clear alpha. Possible theory may be to pick either strategy and make money where it can be made while trying to break even or lose the least on others, so the end result would still be profit.
And I’ve had some winners (besides losses) where the wings definitely made much more profit than the losses from uncollected theta. This is what I’m trying to figure out and improve.
I’m often coming up with very nice winners from analyzing historical data, while my largest losses came from my own assumptions (cognitive bias), basically trying to outsmart the data. The problem is that the historical data doesn’t show any single strategy to win repeatedly, so I have to make assumptions and am still working on the secret sauce and trying to figure out when to use which strategy, and how. I feel like I’m getting close to figuring out how not to lose, but this also ends up often not winning, with the alpha coming from market making, but I can’t compete with market makers so the end result is “hanging in there”
But alpha can come from picking a direction and figuring out best reward-to-risk, and that’s my area of interest.
Re: 2
I don’t start with standalone wings, but try to buy combos that include the wings, or that I could delta hedge until getting the wings. I usually end up with 3-4 legged combos that later may grow into larger structures of multiple such combos, and I may lose track of each combo and end up hedging the whole structure. But I’m working on automated tracking and hedging of each smaller combo, to be able to have a grasp on each manageable situation vs losing track and trying to manage a monster. With too many positions a big problem is that even my deltas become so inaccurate that the Delta can show largely positive in TDA/ToS while negative in IB/TWS, so I’m trying to perfect the option pricing at the same time, or not depend as much on greeks as on what worked historically.
I also make very directional plays, and really try and test quite a lot of setups in an effort to learn and discover whatever may work. There are several strategies where I do see most potential, but can’t discuss them.
This interesting thread sparked some ideas for possible strategies. I think for example to create a hedge for tailrisk for a long index portfolio for example (or actually a surrogate via combinations of calenders/diagonals) one could set up a ratio of puts. For example buy 4x 10% otm puts and finance this with selling 1x atm put. When a very large drawdown occurs the 'body' will be a little bit 'fatter' but the lower part of the distribution of the drawdown will be hedged more, probably resulting in a better profit/drawdown ratio. I need to run the numbers to see if this uncorrelated strategies indeed result in a better Sharpe, but intuitively this makes sense. Thanks!
That's basically how long tail funds structure their position. When nothing happens, you're flat and when it nukes it rains money.This interesting thread sparked some ideas for possible strategies. I think for example to create a hedge for tailrisk for a long index portfolio for example (or actually a surrogate via combinations of calenders/diagonals) one could set up a ratio of puts. For example buy 4x 10% otm puts and finance this with selling 1x atm put. When a very large drawdown occurs the 'body' will be a little bit 'fatter' but the lower part of the distribution of the drawdown will be hedged more, probably resulting in a better profit/drawdown ratio. I need to run the numbers to see if this uncorrelated strategies indeed result in a better Sharpe, but intuitively this makes sense. Thanks!
The tricky part is when the market meanders down towards your long strike but thats a scenario you can manage actively.
Yes I thought about the scenario with a more slow downward grinding market. The last dip would probably be very profitable, but a slow grind can be more challenging. I think the long otm puts would need to be of sufficiënt duration to account for this scenario. And like you said, management can add value, like buying when the market is up most, and only selling (perhaps also itm) after some downward pressure.
But since I would like this to use in conjunction with a 'continuous long portfolio/like' the expexted value can be negative yet add overall value.