Quote from psytrade:
I read the same thing empee and came to the same conclusion.
This appears to be what he does in laymans terms (as I see it):
sell options ---> make money to run business and to pay for otm options
buy otm options -----> make money once a 6 or 7 sigma event occurs.
To what extent selling itm relates to buying otm, i have no idea. One thing he has never said ( that i have read ) is I like to buy low volatility, even though im assuming that buying low volatility is a good thing when your making money off a fat tail. I guess you could buy a breakout in volatility.
Quote from taowave:
What i think you are trying to say is Taleb sells front month or near by gamma to offset some of his longer dated vega exposure.
Bottom line,it appears he is backspread and instead of having a "pure" backspread he is essentially "goes long a calender "which creates short vol in the front months and long it further out.
Net,he is long vega,backspread and as RiskArb pointed out,other than energy,that was the wrong position to have on
Quote from momoneythansens:
All that follows is pure speculation and not based on any knowledge of Taleb's operations or strategy:
I'm not convinced he waits for the large sigma moves to take profits, though that is when he'd make a killing naturally. Much smaller moves could be capitalized upon on a regular basis.
In addition, I suspect the calendarized backspreads/wrangles are traded on a rolling basis so as to attempt to reduce the cost basis for the long vol.
Perhaps, a pseudo dispersion strategy/fly is employed?: long strangles or OTM options on tickers to take advantage of the propensity to gap that are not priced into the options (I believe some degree of automation is employed by Taleb to search out undervalued OTM options?) and short gamma on indexes.
2 cents.
MoMoney.
Quote from riskarb:
Dispersion is not about deltas, it's about correlation. Any competent disp trader will maintain neutral to long gamma, regardless of long or short the dispersion trade.
Quote from RedDuke:
He has been through many cycles and types of market and came way ahead. This says it all.
Quote from riskarb:
Dispersion is not about deltas, it's about correlation. Any competent disp trader will maintain neutral to long gamma, regardless of long or short the dispersion trade.
Quote from taowave:
It should be about implied correlation,but it hasnt been the last 3.5 years.I dont know where delta came in to the conversation.
Off the top of my head,if you are neutral gamma/theta that means you oversold index vol.You would probably be short 2x index notional as you are long equity notional.
You may not think you are trading deltas,but you definitely have a delta bet on at these vol levels