Futures Spreads Vs. Options Spreads
- Thread starter xandman
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Robert Morse
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Low or negatively correlated?
Robert Morse
Sponsor
Low correlation means that they don't move together. Not a good hedge.
Negative correlation means they tend to move in opposite directions. A good hedge.
Negative correlation means they tend to move in opposite directions. A good hedge.
I should put things into better context. My interest is not in hedging per se, but in diversifying away from the risks of a premium selling strategy. So, I definitely don't want a hedging effect or redundancy in return premia being pursued.
And, my choice of futures spreads is due to the accessibility of the product, easy integration to the workflow and portfolio of strategies.
And, my choice of futures spreads is due to the accessibility of the product, easy integration to the workflow and portfolio of strategies.
Robert Morse
Sponsor
When you say futures spreads, are you referring to option spreads or futures time spreads.
Robert Morse
Sponsor
If you avoid VIX, there is no correlation as far as I can tell with those spreads and option premium selling strategies. Speaking in general terms.
There is something of an asymmetric gamma component to trading a futures calendar along with or against the forward curve. So if I am doing options and futures calendars as separate strategies, I am not sure I have a full grasp of the exposure simply based on the net greeks across the term structure. It seems I have to consider each term in isolation.
In any case, day trading some far away back month futures calendar is possible strategy diversification, hopefully. However, that may not be possible for most of us.
In any case, day trading some far away back month futures calendar is possible strategy diversification, hopefully. However, that may not be possible for most of us.
Future spreads don't exactly move on high volatility, since the spread is mainly determined by the interest rate curve and dividends etc (Depending on method. And also this is different for commodities).
So IMO the future spread itself doesn't really have any volatility... Although it might look like much, when you look at a spread going from 0.10 to 0.20... but I don't call that volatility really.. maybe I'm wrong in terminology...
Options spreads can move on volatility, depending on the spread. A calendar is affected by month to month IV shifts. A vertical spread is either more or less ITM because of underlying moves due to volatility. And also IV-shift affects it's price.
So IMO the future spread itself doesn't really have any volatility... Although it might look like much, when you look at a spread going from 0.10 to 0.20... but I don't call that volatility really.. maybe I'm wrong in terminology...
Options spreads can move on volatility, depending on the spread. A calendar is affected by month to month IV shifts. A vertical spread is either more or less ITM because of underlying moves due to volatility. And also IV-shift affects it's price.