dest's discord group--tickers, structuring and pnl

shh · Jul 11, 2020

destriero said:
Trade half as many and you have a triple on the ATM stress and will own Sep vola as Aug goes off. This is a day1 stress. Tenors are not equal (40 v. 68 days). You don't have weeklies with DJX but you can still vert it off when Aug goes off the board (fly; asym-fly; asym-condor).

Stress on single 220P is $0.9 loss at static px & vol. So risk is comparable to the condor with large vol-gains possible. Diag can be worth more than strike diff.

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Hi Dest, in what situation the 220-210 strike gap will become a problem? A slow, down market with suppressed IV maybe?

destriero · Jul 11, 2020

shh said:
Hi Dest, in what situation the 220-210 strike gap will become a problem? A slow, down market with suppressed IV maybe?

I am not tracking. You lose on skew and gain on strips (Sticky d/S). No way that this loses on a strike touch. The idea is that you are holding vega as it's a calendar over the vertical. Yeah, you are giving up the upside, but who really thinks we're going to rally 3K over the Summer?

Honestly, I'd sell the iron at a buck.

destriero · Jul 11, 2020

So the condor is at 4/1 delimited. The mkt is telling you that 4/5x the trade will earn the terminal value inside the strikes. Are you willing to throw money at long-shots until they pay out? If so, then don't limit payouts. Backspreads or bear RRs.

TheGoonior2 · Jul 11, 2020

destriero said:
DJX? 230/235/285/290P?

"stress Day1 valuation at flat vols"

Dest, I really like reading your threads, but dammit man, sometimes I feel like I need to jam a Babel fish in my eyes to help translate all the unfamiliar terms. :banghead:

Can you expound on that phrase a bit or at least point me in the general direction of something that will?

Thanks loads in advance.

deltaf0rce · Jul 11, 2020

destriero said:
Trade half as many and you have a triple on the ATM stress and will own Sep vola as Aug goes off. This is a day1 stress. Tenors are not equal (40 v. 68 days). You don't have weeklies with DJX but you can still vert it off when Aug goes off the board (fly; asym-fly; asym-condor).

Stress on single 220P is $0.9 loss at static px & vol. So risk is comparable to the condor with large vol-gains possible. Diag can be worth more than strike diff.

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As such? Thanks

destriero · Jul 11, 2020

deltaf0rce said:
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As such? Thanks

Yeah, exactly.

destriero · Jul 11, 2020

TheGoonior2 said:
Dest, I really like reading your threads, but dammit man, sometimes I feel like I need to jam a Babel fish in my eyes to help translate all the unfamiliar terms.

Can you expound on that phrase a bit or at least point me in the general direction of something that will?

Thanks loads in advance.

So say you're trading vol on XYZ with shares at 215 and you're bearish. You enter into a 180/190/200/210 put fly long from 2.2. You want to determine your static stress at neutrality. Static stress means current values save for price of the underlying. No change to vol or TTE (time to exp). No change in the smile. No accounting for vol-inverse to share/index price.

You are looking at a DN price of 195 (mid between inside strangle) which is your neutrality absent the price of the forward, but let's assume it's the front month that you're trading.

You stress (static) by pricing the 200/210/220/230 condor (neutral condor). The neutral condor is trading at 4.9. Therefore your gains to neutrality should be something approaching 2.7 points--static stress ignoring change to vol, decay, GBM, etc.

deltaf0rce · Jul 11, 2020

destriero said:
Yeah, exactly.

thanks. Aren’t vol trades supposed to be neutral bias or am I confused?

destriero · Jul 11, 2020

deltaf0rce said:
thanks. Aren’t vol trades supposed to be neutral bias or am I confused?

Neutral? No, I am never neutral at inception. Neutrality is an illusion and and foolish when short vol.

destriero · Jul 11, 2020

destriero said:
So say you're trading vol on XYZ with shares at 215 and you're bearish. You enter into a 180/190/200/210 put fly long from 2.2. You want to determine your static stress at neutrality. Static stress means current values save for price of the underlying. No change to vol or TTE (time to exp). No change in the smile. No accounting for vol-inverse to share/index price.

You are looking at a DN price of 195 (mid between inside strangle) which is your neutrality absent the price of the forward, but let's assume it's the front month that you're trading.

You stress (static) by pricing the 200/210/220/230 condor (neutral condor). The neutral condor is trading at 4.9. Therefore your gains to neutrality should be something approaching 2.7 points--static stress ignoring change to vol, decay, GBM, etc.

... and assuming that you’re using an ATM vol-figure and sticky model. If so, structuring OTM can result in home runs. I am never neutral delta to open a position.