IV Smile and Firm Fundamentals

Same Lazy Element said:
In case of PFOF, when you get filled (at NBBO or with improvement), you'd find that the price will frequently move against you right away. Whenever you miss a trade, you'll find that the price would have moved in your favor right after. Just like in the club, you are getting fucked, minus the condoms.
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So, assuming I absolutely need to get filled within a 10 minute window before close and will take whatever they have in mind, I will be without condoms and entirely at the mercy of a gaggle of lascivious strippers/sirens, poised to roll me randomly but predictably. Sounds like I need a bigger window, but it wouldn't matter much anyway.

Inspired by this metaphor wrapped insight, I've temporarily decided to take a nihilist stance on the MM slippage issue. I always knew I was in a casino anyway.
 
Same Lazy Element said:
Negatively selected - i.e. you getting a desired outcome but the longer-term result will be "statistically bad". Let me offer you an analogy.

Imagine that you go to a club and a girl starts hitting on you. It's unusual, but you think of yourself as a proper stud and take in stride. You buy her drinks, she takes you home. You have wild sex and wake up the whole neighborhood. Sweet!

Next day you got back and get picked up by a different young lady. Again, drinks, snacks and you head to her place. However, instead of fornicating, you wake up in a ditch, with a headache and without your wallet. You write it off as bad luck and go to the same club the next day.

This time around, yet another girl but the same sad outcome as the second day - ditch, headache and missing wallet. You start realizing that "money for nothin' get chicks for free" actually comes a cost, i.e. sometimes you do get to that coveted third base but at cost of potentially losing your wallet 2/3rds of the time. By going to that club and responding to these chicks (i.e. desired short term outcome), you are getting negatively selected (getting robbed as a longer term result).

In case of PFOF, when you get filled (at NBBO or with improvement), you'd find that the price will frequently move against you right away. Whenever you miss a trade, you'll find that the price would have moved in your favor right after. Just like in the club, you are getting fucked, minus the condoms.


Well, you should look at the price of your fill and compare it to the price some epsilon later. You'll find that you get picked off. Similarly, if you see yourself not getting filled at your limit even though it trades there or through elsewhere, see what the price would have been an epsilon later - that's opportunity cost. Do that many times and you'll find that despite it being free, you are indirectly paying for it.
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What is a realistic solution for a retail trader in your experience? Sending market orders? FOK? Or legging in with market orders in complex positions?
 
Same Lazy Element said:
In case of PFOF, when you get filled (at NBBO or with improvement), you'd find that the price will frequently move against you right away. Whenever you miss a trade, you'll find that the price would have moved in your favor right after.

Well, you should look at the price of your fill and compare it to the price some epsilon later. You'll find that you get picked off. Similarly, if you see yourself not getting filled at your limit even though it trades there or through elsewhere, see what the price would have been an epsilon later - that's opportunity cost. Do that many times and you'll find that despite it being free, you are indirectly paying for it.
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:thumbsup::thumbsup:

Now I know those were not coincidences. :banghead:

Even with zero commissions I am still paying for my broker's yacht. No wonder he is so nice to me. :D
 
lightfightercap said:
How do you assess the probability of a binary event causing a price or other move different than anticipated?
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ironchef said:
One the jury is still out: BMY/RT.

Do you have any examples of delta neutral binary event trades?

Regards,
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Looked like the MM are repricing BMY/RT today. It is looking better after BMY re-submitted bb2121 filing to the FDA.

@lightfightercap, I am still waiting for your response to my question.

Thanks.
 
lightfightercap said:
Earnings strangles or straddles or condors with roughly equal deltas, on equities that move less than people expect
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So, similar reasoning: I should have a different opinion than market on that equity move. Thank you I appreciate the answer.

Instead of doing a straight I will try that next time. How do you determine width if a strangle or condor and do you also consider wing protection?
 
ironchef said:
How do you determine width if a strangle or condor and do you also consider wing protection?
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I use a version of the expected move formula, probably similar to the ToS MMM formula. At first I did not use wings, then I did, now I don't 80% of the time. It is counter intuitive but backtesting reveal that wings=higher SD, no wings= lower SD. Losses are technically unlimited without wings, but the losses are much higher with wings than without over time. I chose reliability of returns and lower SD over higher expected value, but thats a personal choice.
 
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