ES Journal Archive (2009 - 2010)

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Quote from Nagelis:

ilo and wohc,


ilo, correct me if i'm wrong but from what i can see you are trading "synthetic" straddles, right?

a very nice and powerful strategy in the current environment, but deadly once volatility comes off, since you are in essence long straddles (long vol) at 1/2 the cost of a normal straddle (the nice bit).

(u buy a call and sell 1/2 cash OR u buy the put and buy 1/2 cash)

every time market moves a certain percentage, you neutralise the delta created by that move. the more u can repeat this neutralising of the delta, the more money u make before time decay sets in.
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Nagelis,

Yes, you have it about 70% nailed down. However, this effective strategy and most importantly the execution of it is heavily dependent on volatility (the behavior and velocity of it) rather than limiting it to a certain percentage the market must move before adjusting. That's why my approach is much more successful than your typical text book vanilla method. However, unlike the typical delta neutral strategy that focuses on staying delta neutral as much as possible, I give mine a decent amount of bias and room to breath. I also do not engage in selling options majority of the time, opting to stay long gamma at all times. I also prefer to engage the market with options only rather than 1/2 cash, 1/2 options as you have mentioned, but because I like posting in this journal, I'm using futures with options. Over coming theta is not that difficult if you structure the strategy correctly, and your volatility timing and expectation is half way decent (but not necessarily perfect). It took me some 6 years to nearly master it in the trenches, so it's not as easy as it may look. It also requires a certain mindset not usually prevalent with your typical directional trader :)
 
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