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delta hedge with ITM call...
- Thread starter cdcaveman
- Start date
have you read any other books that stuck out in your head.. I read the misbehavior of markets by mandelbrot.. and a plethora of other books all the way from a random walk down wall street. To fooled by randomness.. but I really wanna read stuff more about the mechanics of trading options. im sure you know as options get below. 50 and. 20 cents the commisions go down at ib.. im with ib like you.. I know that probably doesn't offset the cost much but the reality is in order to diversify such a small account like mine I have to incur more commissions as a percentage to the dollar size of the trade to keep diversified by strategy and types of securities. i cant make larger trades for the sake of keeping my commisions down
Quote from Gammahedge1:
I'm assuming you're non directional with this trade and you're trying to collect Theta? (if you're trying to be directional there are much better spreads to look at). If so there are four major issues I see with this strategy:
1) BAC is too small. Trade a larger vehicle like GS if you're into financials. You'll get killed on commissions selling shit premium.
2) You're WAY too far out in time. The Greeks aren't linear so the further out you are the less Theta you're going to get.
3) Price can sit right where it is but if the Vega gets sucked out of that long option you're going to get your face ripped off.
4) Throw Talebs book out and read one by a person who actually makes money trading options. Bittmans trading options as a professional is a great book for understanding how the Greeks interact with each other over time.
You can construct all kinds of great strategies using options but as soon as a new trader starts using longs, shorts AND stock simultaneously its a recipe for a blowout. And above all else stay SMALL no matter what you do.
i'm actually long term directional on the banks.. overly pessimistic the market is about them.. but i wanna accelerate the gains by overselling otm premium and hedging my gamma risk with buy stops possibly.. this is still all theoretical.. finding the right month to sell to where the premium is still good but the theta is starting to reallly burn the premium is probably the deal... bottom line on this trade is there is risk to ways.. BAC goes down for an extended period of time and the call sales don't neutralize the loss. or bac blasts up through my sold strikes before i have time to deal with gamma blow out.