Deep OTM Put Ratio Spread - Planning for market crash

G

GLDTLTSPY

Hi guys,

I was contemplating going long 1x2 Put Ratio Spread Very deep OTM on the LEAPS in the SPY to potentially capitalise on a vol explosion/rapid market crash and get the max gamma for the very OTM LEAP puts I bought.

I would structure it so the trade would be established for at best a breakeven credit.

Has anyone on ET tried anything familiar to this? If so what are the potential pitfalls of this strategy.

Thanks.
 
Come again? You want to capitalize on a market crash by doing a 1x2 put spread?

Methinks you might want to examine your thesis more carefully. How exactly do you expect your 1x2 to work in a market crash?
 
Martinghoul said:
Come again? You want to capitalize on a market crash by doing a 1x2 put spread?

Methinks you might want to examine your thesis more carefully. How exactly do you expect your 1x2 to work in a market crash?
More...

Maybe he means buy 2, sell 1.
 
With the markets at an all time high memories of March 2000 is coming back to haunt us. This time we will be prepared. :p

Unfortunately the reality is that you can't prepare for a market crash. :(


:)
 
There is another missing component to the "plan". The date of the market crash is an unknown!!! That Fellow Taleb has been trying to capitalize on the certainty of a market crash for years, but he has the same problem-- he doesn't know the date of the crash, let alone the year of the crash, or even the decade of the crash, certain as it is. All he knows is that a crash is a virtual certainty to occur at some time in the future..

One of the common mistakes in trading and investing -- you can witness it being made daily in the posts on ET -- is the belief that if something is too high then it will come down; thus we had those guys that wanted to short Amazon just before a major bull move. I think one reason for this is a mistaken belief in textbook macroeconomic axioms. The idea, for example, that the market, when it moves away from equilibrium, will spontaneously return to equilibrium. But in real life markets away from equilibrium are far more likely to move even further from equilibrium than they are to return to equilibrium. If markets always behaved the way they do in economic textbooks, and we on average behaved rationally, then crashes and major bubbles would be non-existent. But real markets usually don't spontaneously return to equilibrium, and we don't always, on average, behave rationally. That's why crashes are a virtual certainty. And when the crash comes, the market does not go to equilibrium; it goes way beyond equilibrium in the opposite direction. Now if only we, and we alone, knew the date of the next crash...
 
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piezoe said:
There is another missing component to the "plan". The date of the market crash is an unknown!!! That Fellow Taleb has been trying to capitalize on the certainty of a market crash for years, but he has the same problem-- he doesn't know the date of the crash, let alone the year of the crash, or even the decade of the crash, certain as it is. All he knows is that a crash is a virtual certainty to occur at some time in the future..
More...
But Taleb claimed he made millions and millions "betting" on market crashes even when his timing wasn't perfect?

On your other point, as an ex-techie, I think you are right, the market price often looked like an oscillator with weak damping factor. The question is knowing that can one benefit from this swing and how? GLDTLTSPY is proposing buying a 2:1 put spread. My question on the 2:1 put spread is why don't I just buy a put to play the downside?

Thanks.
 
Yeah sorry buy 2 sell 1. Was thinking of doing an adjustment to Talebs strategy in dynamic hedging.

Also does anyone here think it would be good to do as an earnings strategy compared to other strategies (either Put or Call)?

Thanks guys
 
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