Karen the Supertrader - TastyTrade Hybrid Experiment

[i960]

You keep saying gamma increases if things don't go your way--that's not the case. However, I will say that the gamma curve flattens as vol picks up and that counter-intuitively ATM gamma decreases.

But enough theory. I think we can safely say that theta can be used as a proxy to risk.

No, I'm specifically referring to OTM options and specifically making the point that *at* ATM it is effectively peaked and can only decrease from that point on due to directional changes in the underlying. Also you speak in a way as if the vast majority of people playing these games are actively hedging deltas - when a: they're like not, b: that's going to be quite the fun exercise when the market shits itself and VIX decides to spike to 50+ out of the blue again.

And no I don't agree that theta is some clear proxy for risk.

 

[atrp2biz]

No, I'm specifically referring to OTM options and specifically making the point that *at* ATM it is effectively peaked and can only decrease from that point on due to directional changes in the underlying.

You're right--my head is in straddle/strangle mode. But gamma will decrease once it breaches the strike.

Also you speak in a way as if the vast majority of people playing these games are actively hedging deltas - when a: they're like not, b: that's going to be quite the fun exercise when the market shits itself and VIX decides to spike to 50+ out of the blue again.

I'm not thinking about hedging at all. But I totally agree there is gap risk.

And no I don't agree that theta is some clear proxy for risk.

OK--we can agree to disagree that it's a proxy to measure risk.

 

[atrp2biz]

Using this strategy (or more generally if a portfolio is short vega), what's the cheapest way to hedge? Buying VIX calls, /VX, going long VXX/UVXY are all pretty expensive.

This is my general setup. I'm short the underlying and short the equivalent puts. I may be short additional puts but only on a cash secured basis. I may cover my upside exposure with OTM calls.* This is generally cheaper than the other way around because of skew.

*I think my biggest fear in life is some change in tax policy that would provide companies with a tax holiday if they repatriate funds into the US.

 

[sle]

And no I don't agree that theta is some clear proxy for risk.

Really? Name a better single number that will tell you if you are long or short risk premium.

 

[DB Trades]

This is my general setup. I'm short the underlying and short the equivalent puts. I may be short additional puts but only on a cash secured basis. I may cover my upside exposure with OTM calls.* This is generally cheaper than the other way around because of skew.

*I think my biggest fear in life is some change in tax policy that would provide companies with a tax holiday if they repatriate funds into the US.

I like the long calls as those are cheap right now.

I am trying to get long some longer dated options that have Vega exposure as cheaply as possible, but the setup is tough as volatility is often higher once you get out farther than 60 days in this environment. I typically toss in some VIX calls too, but those are mostly to hedge whatever shenanigans I have going on in the volability ETFs.

 

[sle]

Once you start hedging, it's a different trade. E.g. if you sell the front gamma and buy vega, your risk is term structure (and it's pretty rich right now). If you are trying to reduce the risk, your best bet is reducing the size, not adding more risk on top of it.

PS. I've yet to hear Bobby or anyone's explanation on the origin of this alpha, but I guess

 

[DB Trades]

Once you start hedging, it's a different trade. E.g. if you sell the front gamma and buy vega, your risk is term structure (and it's pretty rich right now). If you are trying to reduce the risk, your best bet is reducing the size, not adding more risk on top of it.

PS. I've yet to hear Bobby or anyone's explanation on the origin of this alpha, but I guess

I think I get this but just want to make sure I am tracking. By term structure being rich, you mean that near-term vol is much lower then longer-term vol, correct? Which is why it's tough to find an attractive setup in the current market.

Fortunately I am with you on the small trade size. Tough to justify betting the house in today's market (for me, anyhow), and not just in this particular strategy.

 

[Sweet Bobby]

Using this strategy (or more generally if a portfolio is short vega), what's the cheapest way to hedge? Buying VIX calls, /VX, going long VXX/UVXY are all pretty expensive.

I carry a ratio of negative delta to negative vega of -1 delta to -2 vega. It's not perfect of course, but so far so good.

 

[DB Trades]

I carry a ratio of negative delta to negative vega of -1 delta to -2 vega. It's not perfect of course, but so far so good.

Yes, definitely makes sense. My issue is that I have a number of different strategies going on, and sometimes I don't really want to get short delta. Just trying to explore other ways to hedge the vega risk.

 

[Sweet Bobby]

I just listened to the Sosnoff interview and thought it was awesome! What are you guys griping about?