I begin trading (investing in) options on Monday

U

union1411

After a few months of reading options books, paper trading, and testing strategies, I've devised a system that fits my personality and is premised on realizing large but infrequent gains from fat tails. Basically my approach focuses on volatility cones. I'm going long vol.

I've got stops, exits, position sizes, etc. decided upon ahead of time so I can take as much emotion out of it as I can.

I'm not a daytrader though.

Thanks for everyone's responses to my questions in the past - it helped. I'm sure I'll have more. I'll be back here in a few after my I blow up my account :)
 
What types of positions are you looking to put on when you say long vol? If you are just buying options for direction, then MTE may be right because that isn't exactly being long vol.
 
Quote from Trajan:

What types of positions are you looking to put on when you say long vol? If you are just buying options for direction, then MTE may be right because that isn't exactly being long vol.
More...

non-directional long vol based on volatility cone. iv mean reversion method. altho if i get a pop over the mean, that's even better. options will be otm. liquidity is somewhat of a concern with otm options so i'm careful what i choose. approach might be somewhat similar to the bleeding approach by taleb, since i am expecting a pop (fat tails) over the mean to offset losses when iv of some of my positions doesn't revert to mean. i have a few kinks to work out to make sure that my gains, which will be less frequent than my losses, will be big enough to offset losses. but all looks good so far.
 
Quote from union1411:

non-directional long vol based on volatility cone. iv mean reversion method. altho if i get a pop over the mean, that's even better. options will be otm. liquidity is somewhat of a concern with otm options so i'm careful what i choose. approach might be somewhat similar to the bleeding approach by taleb, since i am expecting a pop (fat tails) over the mean to offset losses when iv of some of my positions doesn't revert to mean. i have a few kinks to work out to make sure that my gains, which will be less frequent than my losses, will be big enough to offset losses. but all looks good so far.
More...
A couple of things, otm options are soft deltas. This means that they won't generate as big a profit as you might think. This is due to two factors, one is obviously time which works against here. The other is that with otms, calls especially, you could have vols coming in. So, you would want to lean your deltas to your long otm premium.

Another thing, as I am a long vol trader, your losses shouldn't really be that big. Generally I only have anything other than small losses when I miss a hedge or I take one off and am really wrong. But yeah, you bleed, but it should be slow.

As far as mean reverting goes, typically I look for situations where there is a reason it will mean revert. As an example, I've traded CSCO forever, but stopped last year when it stopped working for me. On Monday, I put on a position for the first time in a year as it could potentially break resistance. This will change the distribution of the stock and give a bigger chance for fat tails.

Anyways, Good Luck.
 
Quote from Trajan:

...If you are just buying options for direction, then MTE may be right because that isn't exactly being long vol.
More...

Actually it was a joke, since Union mentions it in the first post.
 
Quote from Trajan:

A couple of things, otm options are soft deltas. This means that they won't generate as big a profit as you might think. This is due to two factors, one is obviously time which works against here. The other is that with otms, calls especially, you could have vols coming in. So, you would want to lean your deltas to your long otm premium.

Another thing, as I am a long vol trader, your losses shouldn't really be that big. Generally I only have anything other than small losses when I miss a hedge or I take one off and am really wrong. But yeah, you bleed, but it should be slow.

As far as mean reverting goes, typically I look for situations where there is a reason it will mean revert. As an example, I've traded CSCO forever, but stopped last year when it stopped working for me. On Monday, I put on a position for the first time in a year as it could potentially break resistance. This will change the distribution of the stock and give a bigger chance for fat tails.

Anyways, Good Luck.
More...

Thanks Trajan. I'll probably have some questions as I go along. Hope you won't mind if I send you a message here and there, since you already have been through the process.
 
Please explain how you will be long vol OTM and non-directional. Lot of big words strung together there. Not sure if you fully grasp it. Want to see an example of how you will be delta neutral, vega positive and OTM.

Phil

Quote from union1411:

non-directional long vol based on volatility cone. iv mean reversion method. altho if i get a pop over the mean, that's even better. options will be otm. liquidity is somewhat of a concern with otm options so i'm careful what i choose. approach might be somewhat similar to the bleeding approach by taleb, since i am expecting a pop (fat tails) over the mean to offset losses when iv of some of my positions doesn't revert to mean. i have a few kinks to work out to make sure that my gains, which will be less frequent than my losses, will be big enough to offset losses. but all looks good so far.
More...
 
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