Delta neutral or directionality: which one do you pick?

[Put_Master]

Quote from tradingjournals:

Actually they may not be deep if one factors volty in, i.e. a 30% OTM may not be viewed as deep for a 90% volty stock (SPY has below 16% lately, so a ratio of more than 5 times). I asked in another thread how does the OTM safety cushion is measured in absolute terms-- the response was some unrelated youtube urls and some other stuff.

As I've stated several times, my goal is a % return in the 13 - 19% range.
Generally speaking, the more volatile a stock is, the higher the credit.
I don't use the higher vol and credit for more % gain.
I use them for more otm cushion.
Thus keeping 99% of my trades earning in the 13 - 19% range.

We've really gone off topic here.
Sorry about that.
If anyone wishes to discuss my trades, please continue it on "My 2013 Option Trades" thread.

 

[oldtime]

Quote from Put_Master:

Generally speaking, if more than 80% of my stocks are put to me, I'll be on margin.
But it depends on WHEN during the investment cycle that occurs.
If it occurs early or mid point in a monthly cycle, when I'm not yet fully invested, then I can own 100% and not be on margin.
If it occurs late, when I'm more than fully invested, then I'll be on margin.

I'm different than the spread trader who only uses spreads, because I can buy 100% of my deteriorating stocks, even if fully invested on margin.
Assume 10 - 20% ITM.
The average spread trader who uses average strikes of $40 - $60, and is fully invested, can only buy about 5 - 10% of his deteriorating ITM stocks.
Even less if his strikes are higher.
The rest of his trades and cash are gone. Wiped out.

Like the man said, you can make 100% ROI and it's not really that big of a deal

but you can only lose 100% once, and it's a life changing event

the traders understand that

but I'm not sure the mathmaticians do

 

[Put_Master]

Quote from oldtime:

Like the man said, you can make 100% ROI and it's not really that big of a deal

but you can only lose 100% once, and it's a life changing event

the traders understand that

but I'm not sure the mathmaticians do

I'm not sure most spread traders understand that either.

Again, we are really off topic on this thread, so feel free to continue it on the appropriate thread if interested.
I'm taking a break.
But I thought it was a good overall discussion.

 

[cdcaveman]

wow thats all i have to say about this thread haha.. ....

right right there are differences in trading options period to trading the underlying.. as is there are differences in trading direction with options and using delta to hedge sold or even bought options depending on your view..

my pick... long or short delta in butterfly's , credit spreads, and selling options against positions.. i don't have a problem overwriting if i feel this risk of jumps is manageable.. and i would reduce my size in the entire position if i thought there was jump risk in general.. i don't have the account size to overwrite call options on aapl or many others for that matter.. i've tried breaking wings on the flys to emulate ratios with less margin requirement but i really don't know what i'm doing..

never dealt with commodity options.. didn't know there was a big difference in skew.. it would make sense with the jumps and limits being up alot of times.. with the fact that droughts and catastrophes can send ags sky rocking. although i'm learning about currency options as i go..

So you can see the catastrophe coming? and diffuse the jump? i just would think buying deep otm wings in some ratio backspread would be better then outright strangles.. but as i've noticed any series with a steep skew its costly buying wings..

 

[atticus]

Quote from cdcaveman:

and diffuse the jump?

I am not picking on you, but can you tell me wtf that means? Did you read a paper on a shitty French model? Or Merton's? It's not a verb in this context.

 

[oldtime]

option traders seem to have a lot more ability to treat the whole thing more like a business

as opposed to the commodity trader who bets it all on his fundamental analysis

so, the original question was

delta neutral or directional?

they won't ever write a book about you if you are delta neutral

unless it is about old traders who are getting social security

 

[cdcaveman]

Quote from atticus:

I am not picking on you, but can you tell me wtf that means? Did you read a paper on a shitty French model? Or Merton's? It's not a verb in this context.

hahaah you know me to well.. jump diffusion is a type of stochastic/random process ... i was using it more like diffusing a bomb(jump) in your options book.. which is clearly the wrong use.. thanks for pointing that out.. always can count on ya

 

[atticus]

Quote from tradingjournals:

Actually they may not be deep if one factors volty in, i.e. a 30% OTM may not be viewed as deep for a 90% volty stock (SPY has below 16% lately, so a ratio of more than 5 times). I asked in another thread how does the OTM safety cushion is measured in absolute terms-- the response was some unrelated youtube urls and some other stuff.

The point is that he's not harvesting skew. He's attempting to trade outside of the forward distribution. He would trade ATM if he were attempting to trade vola. He would be trading index or ETF if he were selling skew. There is no mention of vola in any of his posts. Now we get some blather that hedging is strike selection and technical criteria prior to establishing a trade.

 

[cdcaveman]

Quote from atticus:

The point is that he's not harvesting skew. He's attempting to trade outside of the forward distribution. He would trade ATM if he were attempting to trade vola. He would be trading index or ETF if he were selling skew. There is no mention of vola in any of his posts. Now we get some blather that hedging is strike selection and technical criteria prior to establishing a trade.

Any idea why etf and index skew is higher?..

I dont think put master isnt gonna get it... he will start spitting back stuff about percentage otm slash risk reward ratios and spread trading leverage till your blue in the face

 

[atticus]

Quote from cdcaveman:

Any idea why etf and index skew is higher?..

I dont think put master isnt gonna get it... he will start spitting back stuff about percentage otm slash risk reward ratios and spread trading leverage till your blue in the face

There was a slight up and out skew prior to the 1987 crash.