Hedging short Vol

getthatintoya

getthatintoya

Hey guys so I am looking for some suggestions from the smart people here on the best ways to hedge short vol mainly on the put side.
Background: Only on index options
Options sold are close to the money
More than half the time I am short calls and puts at the same time, sold from 30-45 days out and closed at 7 dte.
The main point of hedging the put side is for margin relief and black swan protection. The two setups I have been exploring are bearish risk reversals (short call long put 30-45 dte done OTM) and weekly long backspreads for a very small debit.
The RR is based on my ability to predict short term tops hence no pressure on the short call hopefully.
I am not blindly selling premium, when I am going short I am getting signals that the market will not cross this point in the next 30 odd days.
Thx
 
getthatintoya said:
Hey guys so I am looking for some suggestions from the smart people here on the best ways to hedge short vol mainly on the put side.
Background: Only on index options
Options sold are close to the money
More than half the time I am short calls and puts at the same time, sold from 30-45 days out and closed at 7 dte.
The main point of hedging the put side is for margin relief and black swan protection. The two setups I have been exploring are bearish risk reversals (short call long put 30-45 dte done OTM) and weekly long backspreads for a very small debit.
The RR is based on my ability to predict short term tops hence no pressure on the short call hopefully.
I am not blindly selling premium, when I am going short I am getting signals that the market will not cross this point in the next 30 odd days.
Thx
More...

you can only hedge with other convexity.

either in a different asset class, tenor or strike.

personally I think that rather than hedging index vol, I would just trade smaller. You will give up edge to buy skew.
 
I mean, I don't get the question. If you want to have delta exposure, trade the futures or the ETF.

If you trade options there is no single scenario where you are always flat vol unless you trade a synthetic forward...but then you better trade the underlying anyways.

Vertical: Spot moves to long strike -> long vol, spot moves to short strike-> short vol
RiskReversal: You can put it on vega neutral but you have vol exposure through spot and skew

Please define exactly what you want to achieve and why you don't want exposure to vol when you short calls to pick tops.
 
MrMuppet said:
I mean, I don't get the question. If you want to have delta exposure, trade the futures or the ETF.

If you trade options there is no single scenario where you are always flat vol unless you trade a synthetic forward...but then you better trade the underlying anyways.

Vertical: Spot moves to long strike -> long vol, spot moves to short strike-> short vol
RiskReversal: You can put it on vega neutral but you have vol exposure through spot and skew

Please define exactly what you want to achieve and why you don't want exposure to vol when you short calls to pick tops.
More...

He wants to be short downside gamma without being short downside gamma on a big move.
 
newwurldmn said:
He wants to be short downside gamma without being short downside gamma on a big move.
More...
hm...gamma is not the problem here. He could easily sell 3m and hedge gamma with cheap weaklies.
But when the hammer drops, vol explodes on the 3m and you can't do much unless you've got a vertical hedge
 
MrMuppet said:
hm...gamma is not the problem here. He could easily sell 3m and hedge gamma with cheap weaklies.
But when the hammer drops, vol explodes on the 3m and you can't do much unless you've got a vertical hedge
More...

weeklies are only cheap in premium but Gamma is gamma is theta is theta.
 
Im with you...

If he hedges with a risk reversal against his strangle,hes short a put spread vs 2 calls...Dont love it..

Ild rather trade a loose dispersion hedge dependent upon implied correlation



newwurldmn said:
you can only hedge with other convexity.

either in a different asset class, tenor or strike.

personally I think that rather than hedging index vol, I would just trade smaller. You will give up edge to buy skew.
More...
 
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