Delta Hedging at different vol levels

What do you guys think if I long the emini instead of short the strangle? since it is implicitly short vol!! Anyone done anything like this before? I could also sell the straddles on the emini because of span margin.
 
Robert Morse said:
Selling the straddles on the ES because of span margin makes sense. Long ES does not offset decay.
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That makes sense. I should do some work on this though because wouldn't low vol mean rising market which would act just like short theta, or at least very similar. And in high vol markets I wouldn't be short gamma or Vega.
 
SillyWilly said:
That makes sense. I should do some work on this though because wouldn't low vol mean rising market which would act just like short theta, or at least very similar. And in high vol markets I wouldn't be short gamma or Vega.
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You are making an assumption that the stocks you are buy vol in are correlated to the index. In reality I find down markets are more highly correlated than up markets. Typically, in an up market vol will go down but the individual stocks might drop faster than the market indexes. You will profit the most if one of your symbols drops while the market is stable. BTW, AVGO just had earning which might account for the low vol after an event. Does not mean it is not a buy. I have no opinion on this symbol.
 
SillyWilly said:
Okay so I have about 5 names where I think the implied vol spread between the spx and underlying's is understating the future vol spread. I will short the atm straddle on spy and long 5 underlyings straddles. The avg difference between spreads is 4%. I was thinking of using $theta to weight them. @newwurldmn won't gap risk only help me since I am long gamma in the individual stocks (more prone to large gaps). Did you mean vol or beta? Waiting by vol also makes sense to me. Since vol is a function of time I will be hedge everyday before the close rather than every x amounts of delta. Sound reasonable?
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The art is how much index do you short against your single stock basket. There is no right answer and it has huge impact on your pnl.
 
Robert Morse said:
You are making an assumption that the stocks you are buy vol in are correlated to the index. In reality I find down markets are more highly correlated than up markets. Typically, in an up market vol will go down but the individual stocks might drop faster than the market indexes. You will profit the most if one of your symbols drops while the market is stable. BTW, AVGO just had earning which might account for the low vol after an event. Does not mean it is not a buy. I have no opinion on this symbol.
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I see they have had earnings however I still think the IV is low compared to how much it should fluctuate. I use the Parkinson Model for HV and IV seems reasonably low against it.
 
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In the picture I have posted, I am looking at the skew relative to historical levels. NIKE is in the top percentile. I am getting a little frustrated on how I should take advantage of this. Because I don't want to be naked on the 1x2 spread and if I put on a fly then I am also buying the DOTM leg 1x2x1 or 2x3x1. Can one of you geniuses point me in the right direction here? @destriero
 
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