Too far out both my suggestions get you in alot closer to the market.
Hedging short Vol
- Thread starter getthatintoya
- Start date
Doesn't the RR give you that convexity though?
I have done that "trade smaller" but as the portfolio grows am now having to increase size to keep outperforming the index.
"You will give up edge to buy skew" yep I know hence my question.
if you are short a put and trade a risk reversal then you are now just short a call which is not your view.
smaller meant in the context of your account.
Ok digging into the weeds here but lets go. I use options because I am willing to cap profit (premium received) in order to take a smaller loss due to theta gain if I have to do a stop and reverse on my signal day.
An example of a setup where I can't use futures. More than a third of every months have their high/low on the first trading day. By day 4 two thirds of every month have had their high/low put in. Hence why that setup at some stages have both calls and puts sold.
"Please define exactly what you want to achieve" black swan protection for short strangles that are sold close to the money or sold puts by themselves sold close to money. The protection needs to be as close to free as posible LOL.
Doesn't convexity work in my favour with the RR though? What are your thoughts on the backspread then if you don't like the RR?
Trying to keep it simple so no dispersion ;-)
Ok lets use an example. index is at 1000 trades down to 950 then rallies to 970 next day which gives me a signal that for the next 30-45 days (depends on the setup) the market will not close below 950. So we sell the 950 put that expires at our defined time view.
Lets say we already had some form of hedge to protect downside black swan event and now we need to renew it.
Backspreads: weekly put back spreads are for evens or small debit below our sold put level. This would need to be done 5 or so times to tie in with our sold put duration.
RR: so the market moves up further over the coming days to 1050 and I think a top has been put in for the next 4 weeks so I sell the 1150 call and buy the 880 put for evens. This now gives me protection for the next X amount of weeks.
Ok lets reword the question to see if we can't get some more response.
If I am short puts or a combo what is the best/cheapest way to add some negative deltas to my portfolio?
If I am short puts or a combo what is the best/cheapest way to add some negative deltas to my portfolio?
Short stock. Buy other puts.
Really, there is no way other than short stock or buy other puts or cut your losses, if you are a trader.
If you are a hybrid trader/investor kind, there is one more way. If it’s a good stock and you are ok owning it for a little while, wait for it to be assigned to you. The moment you decide not to do anything and wait for it to be assigned, volatility doesn’t matter anymore. But then, this becomes plain boring cash secured puts, no fancy jargon or secret sauce in it, to show off your smartness. We all heard numerous times that successful trading is boring, no?
Maybe you can buy some ootm puts until the expiration, in case it falls to zero. After you own, you can sell calls against it or sell the stock. You will have only delta loss and no loss due to volatility. Looking forward to other’s thoughts on this, as I am also doing something similar.
If you are a hybrid trader/investor kind, there is one more way. If it’s a good stock and you are ok owning it for a little while, wait for it to be assigned to you. The moment you decide not to do anything and wait for it to be assigned, volatility doesn’t matter anymore. But then, this becomes plain boring cash secured puts, no fancy jargon or secret sauce in it, to show off your smartness. We all heard numerous times that successful trading is boring, no?
Maybe you can buy some ootm puts until the expiration, in case it falls to zero. After you own, you can sell calls against it or sell the stock. You will have only delta loss and no loss due to volatility. Looking forward to other’s thoughts on this, as I am also doing something similar.
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