Free left tail convexity. Am I kidding myself?

[tman]

if that plot could be played through the evolution of the structure over time... as a video

Excellent idea. I'm a young boomer without crazy computer skilz. An idea I could implement would be a daily snapshot edited into a Youtube vid. I'm going to start capturing this tab daily and get one of my kids to assist. There will definitely be eye-rolling involved.

 

[cesfx]

Here's a visual of my current structure. All models are flawed; some models are useful. I consider the TOS analyze tab to be useful. P/L day stepped 7 days for the next 28 days.

The lines are set at 4 days step, I guess that is multiple expiration days.
Have you tried to set that function on volatility step, 3 or 4 steps of 5%?

 

[BlueWaterSailor]

Imagine if they didn't have breakers installed. Prolly would have made 1987 seem like a minor correction.

Breakers must have just added to the horror. Like standing there frozen, unable to do anything as the giant anaconda creeps closer and closer and closer...

Good shit for those who can sit on the sidelines with the popcorn.

 

[tman]

The lines are set at 4 days step, I guess that is multiple expiration days.
Have you tried to set that function on volatility step, 3 or 4 steps of 5%?

There is a lot going on in the TOS analyze tab. There are 4 lines each representing 7 days forward. The dates are color coded in the lower left of the graph.

The breakdown in the lower panel shows that I'm losing 8 net long puts that will expire May 31.

5% of what though?

 

[newwurldmn]

My goal has been to build an SPX option structure for less than free to "protect" some short vol structures. I started in October 2021 by selling 6x 2.5 delta 120 day SPX puts. I then place an order to buy back 10 of that same option for less than the initial premium collected. Rinse and repeat by initiating a new short 6x, new 2.5 delta put and the new 120 dte. I've been slowly adding to this (increasing size) over time. The number of puts I'm net long has been growing nicely.

I acknowledge that this "strategy" has benefited from a one time, random, possibly permanent impact; a sort of timing luck factor. But clearly, I initiated this and stuck to it systematically during a tough time for short vol strategies and it appears to be robust.

I've been net long as many as 78 SPX puts, and am currently only net long 31. I can provide a link to my spreadsheet if there's interest.

How am I going to lose? What will the path to destruction look like?

After the first 6 that you sold, are your risk graphs strictly long convexity?

 

[BlueWaterSailor]

Excellent idea. I'm a young boomer without crazy computer skilz. An idea I could implement would be a daily snapshot edited into a Youtube vid. I'm going to start capturing this tab daily and get one of my kids to assist. There will definitely be eye-rolling involved.

If you or your kids speak Python, I can share some of my finance notebooks. You can generate whatever plots or surfaces you want, and even animate them.

 

[spy]

If you or your kids speak Python, I can share some of my finance notebooks. You can generate whatever plots or surfaces you want, and even animate them.

View attachment 315445

View attachment 315446

Plotly?

 

[BlueWaterSailor]

```import matplotlib.pyplot as plt```

Although I've also been known to dabble in

```from mpl_toolkits.mplot3d import Axes3D```

 

[cesfx]

5% of what though?

Volatility steps, instead of 7 days line step, you can select volatility steps, 5% increment (which might be default).

As your highest risk is probably an immediate fast drop and IV spike.

 

[tman]

After the first 6 that you sold, are your risk graphs strictly long convexity?

No. I had bouts of short convexity until May 2022. Been long in that tail to varying degrees since then.