Don't Believe everything you hear

C

cdowis

A certain well-known broker had their usual Wednesday chat, talking about the high volty and the opportunities.

He then advised that this was a good time for a strangle straddle swap, a double diag. He went on about how the volty would be sucked out of the options soon.

The only prob is that he did not mention that the profit will also be sucked out of a DD. It is vega positive and a big drop in volty will crush it.

I sent him an email but not heard back from him yet. Will update you on his response.

Perhaps I heard him incorrectly. Anyway, don't believe everything you hear.
 
I haven't heard the chat so I can't really argue for or against this, but the positive vega of a double diagonal is not "homogeneous". You can't just add up the vegas across different expirations. So maybe the speaker meant that the front month would get crushed more than the back.
 
Since the straddle was sold in the front month it does seem he may have been referring to the front month dropping more relative to the back month even though back month has higher vega. I was not in on the chat sessions so I do not know what specific strategy he was discussing.
 
Quote from optioncoach:

Since the straddle was sold in the front month it does seem he may have been referring to the front month dropping more relative to the back month even though back month has higher vega. I was not in on the chat sessions so I do not know what specific strategy he was discussing.
More...

Understood, but most would refer to the net greeks.
 
Quote from atticus:

Understood, but most would refer to the net greeks.
More...

As I said above, you cannot net vega across expirations cause the term structure of volatility can have non-parallel shifts. You can net all the other greeks, though.
 
Quote from optioncoach:

Since the straddle was sold in the front month it does seem he may have been referring to the front month dropping more relative to the back month even though back month has higher vega. I was not in on the chat sessions so I do not know what specific strategy he was discussing.
More...

The trade was a QQQQ 47/48/49 Sep/Sep Quarterly double diagonal. It was Sosnoff who discussed it yesterday, and I asked him during the chat why he would choose such a strategy given current high vols. His response was something along the lines of that he was trying to discuss how to place trades using the software and some ideas, rather than specific recs. He obviously understands vega risk, and more than anything else during yesterday's chat he emphasized selling premium and vegas with vols so high. Nevertheless, caveat emptor.

ST
 
You must log in or register to reply here.
Back
Top