For those that make their living

Maverick74 · Dec 5, 2005

Quote from riskarb:

Ahh, OK. I didn't receive the memo. Nice, seems secure.

For sure man. Nobody, and I mean nobody will be able to see your account that way. If you see someone coming, you just shake it up and down real fast and poof, the data is gone. Brilliant!

You probably got the memo, but you your kid was playing with it on the etch a sketch and decided to make an airplane out of it. That's the downside, keep it away from your kid!

riskarb · Dec 5, 2005

Quote from Maverick74:

For sure man. Nobody, and I mean nobody will be able to see your account that way. If you see someone coming, you just shake it up and down real fast and poof, the data is gone. Brilliant!

I am still LMAO off of the sight of someone being chased and furiously-shaking the damn EAS.

sabotage · Dec 6, 2005

Quote from Sammy Iyer:

Hi Riskarb & others!
I read some of your quite thoughtful posts.I have been trading options since 1999.But some how with a day trader mentality I trade mostly naked call/puts in the near month betting in the direction in the next 5-7 days. As you guessed some big winners & most small losses.Some times I do buy deep in the money calls & sell ATM/OTM calls like covered call play.
I have a question -How you will compare index options & the underlying ETF options for liquidity,pricing & cost of execution?
($SPX/ES-SPY,$DJX-DIA,$rut-IWM,$ndx-QQQQ)--- Thanks

Hey Riskarb,

Do you limit yourself to 'mostly SMALL losses' by simply having a disciplined hacking strategy? What expiration do you trade when you want to place a directional move? And how far out-of-the money are most of the options you trade?

As a market maker I stick to pure arbitrage, so I am very curious to know and learn the art of the smart gamblers out there.

FullyArticulate · Dec 6, 2005

Quote from lkh:

Option play i made today. Bought 1000 MO at 72.88. Sold the dec 70 calls @ 3.40.

Plan is to let it be called away in 10 days and collect 52 cents premium and also the 80 cents dividend. Comments from option pros?

Guess I'm confused by this one. According to the Altria web site, the div-ex date is 12/23/05. This is after December expiration?

lkh · Dec 6, 2005

Quote from FullyArticulate:

Guess I'm confused by this one. According to the Altria web site, the div-ex date is 12/23/05. This is after December expiration?

You are right. I missed that. I trade MO often and the dividend is usually the second week of the month. This december it is later so you will not capture the dividend this month. It is just a plain covered call in that case. Sorry.

riskarb · Dec 6, 2005

Quote from sabotage:

Hey Riskarb,

Do you limit yourself to 'mostly SMALL losses' by simply having a disciplined hacking strategy? What expiration do you trade when you want to place a directional move? And how far out-of-the money are most of the options you trade?

As a market maker I stick to pure arbitrage, so I am very curious to know and learn the art of the smart gamblers out there.

Typically looking for gamma-magnitude, which limits me to front months, unless I'm looking to buy vol, which isn't very often. When I do go long vol, I buy VBI futures. Horrible market and illiquid, but large contract size. I'd say the meat of the curvature is in 25-30delta[per contract] positions carrying 10-15 gammas in exposure. [When] I trade long-gamma, it's in vanilla backspreads and OTC exotic barrier-touches.

Long gamma isn't suited for taking small losses; IMO, the trimming of vol-edge from short theta requires a buy and hold mentality, regardless of a ramped-gamma. Most long-gamma traders can't afford to take the small hit and must gamma-trade any position, whether it be a simple call/put or complex strategy.

FWIW, I am primarily an OTC/exotic player. Fixed-short gamma in double and single barriers[exotic synthetic short straddles] and replications[long box-vol exotics]. w.r.t. the short-synth, I am a pure distro-bettor.

riskarb · Dec 6, 2005

Quote from sabotage:

Hey Riskarb,

Do you limit yourself to 'mostly SMALL losses' by simply having a disciplined hacking strategy? What expiration do you trade when you want to place a directional move? And how far out-of-the money are most of the options you trade?

As a market maker I stick to pure arbitrage, so I am very curious to know and learn the art of the smart gamblers out there.

Sabotage -- I think your question was actually directed at Sammy.

Sammy Iyer · Dec 7, 2005

Hi sabotage
I always trade front month.Nibble some positions just after previous month options expiry.Increase betting size(long side) to catch the month end/first 2 days effect if any.From 5th of the month to 3 rd Friday high risk-high return if my direction bet pays off.Yes! decay will be killing me every day 11AM.If the underlying move 2-3 $ ,I still get not much.But if moves up to $5 ,I would have more than double/tripled my OTM call/put.Yes! If the undelying moves in the opposite direction of my bet,my position value will halve in no time!!Poor me!So getting the direction right is very crucial just to make some profit!
when I trade options on high priced ETF stocks like BBH,OIH or similar equity
priced at $100-If the equity is in between strikes say 103 ,I will bet on 110C or95P.If it is at the round no,then Next strike.
Small losses are say 0.40-0.60 options going to nothing or salvaging 0.10-.15 out of it.ATM & OTM options costing 1.5 to 3 will be stictly monitored for wrong or right direction to break even or losses up to half the price.
OTM Good winners are $.30/.40/.70 going to ..80/.90/1.2 /1.5 like that .One good winner pays for 3-4 loosers.
ATM winners (delta up to .5) are usullay profit booked at 40% to 50%.Usually 7-10 positions at any given time.
SPY/DIA/IWM options (maximum 2 stikes out)
If Iam bit hazy on options(or got too many losses), day trade SPY or my usual few big board high volume stocks watching 3'/5' chart & scalp 0.30/0.50 on 1-5k trade.
Sabotage!I am sure as a market maker ,you will be employing much smarter tactics than this yours truly small time gambler!.Do you hedge with options only or with short/long equity also in your Arbitrage game?Market humbles me every day& Iam willing to learn!

Sammy Iyer · Dec 7, 2005

Hi Riskarb

Quote from riskarb:

Typically looking for gamma-magnitude, which limits me to front months, [When] I trade long-gamma, it's in vanilla backspreads and OTC exotic barrier-touches.
FWIW, I am primarily an OTC/exotic player. Fixed-short gamma in double and single barriers[exotic synthetic short straddles] and replications[long box-vol exotics]. w.r.t. the short-synth, I am a pure distro-bettor.

Hmm ..Nicely sums up your trading philiosophy in some what poetic Greek !(Option terminology or otherwise)

I remember you saying you trade the options on same familiar stocks! OTC not Nasdaq o.k! What is exotic? I have heard the term only in the currency world.In lay man terms could you care give us an hypothetical trade if you dont mind!
regards-sammy

riskarb · Dec 7, 2005

posted from my journal

DAX double:

Traded the 7d 4900/4750 double barrier[range]. Entire premium paid is lost if either strike is hit. This differs from a conventional double-knockout in which the opposing strike would remain "live" if one were hit. A fixed payout of $150k EUR is paid if neither k/o barrier is reached. Position risk and payment for the position is $50k EUR. I've been using various models to price; finite difference, Laplace transforms, among others.

Dax double barrier[binary k/o range] -- 4900/4750 K/Os
Premium: $50,000 EUR
Payout: $150,000 EUR [includes prem paid]
Expires: Aug 3, 2005
Negative edge: $9,000 EUR

A short strangle would be the analogous position in the vanilla-options. Obviously there are significant differences. There are no binary conditions with a vanilla straddle, yet risk is unlimited on the call[vanilla].

Defined: Short gamma/vega binary-strangle with a debit haircut. I own a piece of this trans, brother's fund is the holder.