Lets talk variance

[Amahrix]

Sir,

I spent the last week running BSM simulations and backtests SPY tail risks using my newly learned VBA-excel programming skills (since I don't have historical option prices, I made some simple assumptions on IV - historical, historical average, term structure, skew...., dividend rates and risk free rates):

1. Tails were quite expensive to protect but long OTM puts did protect short put-write in 2000-03 and 2008-09 from ruin. So, you are right.

2. There is another way to protect put-write: Do what Taleb said: 80% low risk bonds and 10-20% put-write. Though the returns in this case weren't spectacular.

3. Hunting tails could payoff handsomely if you didn't mechanically buy tails but did it with some good judgement. This is of course obvious but beyond my capability.

4. In general, in the last decade, because of the bull market, buying calls or writing puts even with eyes closed were winning strategies. No wonder a newbie like me could make money.

5. What's next?

Regards,

https://www.bloomberg.com/news/arti...iversa-tail-risk-fund-returned-3-600-in-march

 

[ironchef]

What do you mean "when everything is somewhat correlated"?

Many markets are negatively correlated..

When there is a crash.

Look at the market the past month, almost nothing was spared. 100 flies would do no better than 1 fly.

 

[ironchef]

https://www.bloomberg.com/news/arti...iversa-tail-risk-fund-returned-3-600-in-march

My simulations showed outsize profits in 2003 and 2009 but 23 out of 25 years of constant losses from long put expired worthless wiped out most of the gains. Since I didn't have a crystal ball I had to be constantly in the market to catch the falling knifes.

 

[.sigma]

My simulations showed outsize profits in 2003 and 2009 but 23 out of 25 years of constant losses from long put expired worthless wiped out most of the gains. Since I didn't have a crystal ball I had to be constantly in the market to catch the falling knifes.

Simulations? Care to share what kind of simulations? Software wise.

 

[Amahrix]

Simulations? Care to share what kind of simulations? Software wise.

Sigma is that 50 cent on your avitar? Listen to “G’d up” on his G Unit album. It’s a banger.

 

[.sigma]

Sigma is that 50 cent on your avitar? Listen to “G’d up” on his G Unit album. It’s a banger.

Not only have I listened to G'd Up a billion times... I'm happy someone on this forum knows whats good!

Them hollow tip shells burn baby burn!

 

[.sigma]

When Get Rich or Die Tryin released I was in 7th grade. Every single human had that CD.

50 changed my life for sure.. Definitely a role model. Most grimy rugged gangster/gentleman rich wealthy rapper of all time. I'm pretty sure 50's the only rapper to be interviewed by Harvard Business.

Jay-Z did have a classic interview with Buffet and that other old guy forgot his name..

Diddy also has interviews with Dalio..

But the different between Jay and Diddy and 50.. is 50 is a real gangster, ran his hood via selling drugs on every corner (cornering the market) then applied that same scheme to the music industry and now the TV/Movie industry...

Plus I think that "infamous" 50 Cent VIX trader really is Curtis himself lol #GuerrillaUnit

 

[Amahrix]

When Get Rich or Die Tryin released I was in 7th grade. Every single human had that CD.

50 changed my life for sure.. Definitely a role model. Most grimy rugged gangster/gentleman rich wealthy rapper of all time. I'm pretty sure 50's the only rapper to be interviewed by Harvard Business.

Jay-Z did have a classic interview with Buffet and that other old guy forgot his name..

Diddy also has interviews with Dalio..

But the different between Jay and Diddy and 50.. is 50 is a real gangster, ran his hood via selling drugs on every corner (cornering the market) then applied that same scheme to the music industry and now the TV/Movie industry...

Plus I think that "infamous" 50 Cent VIX trader really is Curtis himself lol #GuerrillaUnit

In elementary school, I had a red shirt with a fat face of 50 printed&enlarged on it.

lloyd banks “On Fire” throws me directly back into that era of my life.

 

[.sigma]

In elementary school, I had a red shirt with a fat face of 50 printed&enlarged on it.

lloyd banks “On Fire” throws me directly back into that era of my life.

This heat gonna last for the whole......SUMMAH

 

[ironchef]

Simulations? Care to share what kind of simulations? Software wise.

From my prior post to @Amahrix:

I spent the last week running BSM simulations and backtests SPY tail risks using my newly learned VBA-excel programming skills (since I don't have historical option prices, I made some simple assumptions on IV - historical, historical average, term structure, skew...., dividend rates and risk free rates):

I used the SPY historical data to mechanically buy puts from 1993 to 2019 to try catch the infrequent black swans.

The absolute accuracy was poor but I thought it might be possible to shed some lights on the relative outcome and the possibility to profit by mechanically buying tails?

It was actually profitable but after losing money 23 out of 25 years, the net profit was not that spectacular.