Mav's Christmas trees
- Thread starter Maverick74
- Start date
Be nice, boys and girls.
Mav,
Vols are so deflated now, what options are you gonna sell that give you +EV? If you find some individual issue with pumped up vols, odds are somebody knows something you don't and you're playing with fire. I usually prefer to trade index options if I want to walk naked in the park, and usually the calls because I don't like the "crash risk" of naked puts. And certainly not in this low vol environment right now. Now is the time to be looking to pick up some long gamma and long vega. Sell ratios or xmas tree now? Naw, bad play. IV's have no place to go now but UP.
As for your diagonized, bi-directional variant, well, it's an interesting mess that most traders will lose on for no other reason than you're looking at two spreads with three legs each and mm's that would rather drink gasoline than let you in at a workable price.
These fancy spreads are for mm's, not retailers.
wee
Vols are so deflated now, what options are you gonna sell that give you +EV? If you find some individual issue with pumped up vols, odds are somebody knows something you don't and you're playing with fire. I usually prefer to trade index options if I want to walk naked in the park, and usually the calls because I don't like the "crash risk" of naked puts. And certainly not in this low vol environment right now. Now is the time to be looking to pick up some long gamma and long vega. Sell ratios or xmas tree now? Naw, bad play. IV's have no place to go now but UP.
As for your diagonized, bi-directional variant, well, it's an interesting mess that most traders will lose on for no other reason than you're looking at two spreads with three legs each and mm's that would rather drink gasoline than let you in at a workable price.
These fancy spreads are for mm's, not retailers.
wee
Wee,
I'm not sure what the hell your talking about. I see a lot of great high vol out there. I think the way you have to look at it, or at least the way I look at it, is I try to be vega neutral. So I have a long vega portfolio and a short vega portfolio. That's as simple as I can make it.
Take a look at RMBS. Vol ran up from 60 to 110 from nov to dec going into the court ruling on the anti-trust suit. Last week the court ruled that they needed more time and the vol came in 40 ticks in 2 days. That was a no-brainer. Even if the court would have ruled the vol was going to collapse one way or the other. When you have a vol runnup like that you have to be short that. It's not going to stay up there. Of course you diversify across a lot of different plays. I'm not saying you bet the house on RMBS. But that was a layup.
There are many plays out there just like this. In fact this is exactly the market where you would want to be short vol on huge runnups because vol has been so low and anything that pops up is going to come down just as fast. As far as somebody knowing something, sure somebody knows something, that is why they are taking the directional bet and spiking the vol up. They don't care that they are buying vol at 110 when it was 60 two months ago, they have deltas on their side.
So if you don't like the trees thats fine, I personally don't want you selling premium ahead of me anyway. Just don't be narrow minded about volatility. You and I both have no idea where vol in general is going. That is why i like to be long and short an equal amount of vol. I would never just buy vol or just sell vol, why would you do that? Those that got long vol at the beginning of this year got destroyed. I mean killed. And last year it was at record lows. But it just kept going lower.
Mav,
You are correct that there are often opportunities to sell vol spikes in individual issues and also I like the idea of balancing short/long vega exposure across your portfolio. I just meant to observe that, in terms of the general market, vols are quite low now as we chug higher without a meaningful correction.
Now, if you have identified a special situation, such as RMBS, and you know the stock, how it trades, and you understand the risks underlying the fundamentals driving the vols higher, great, go short some vega. I just would caution people that high vol may mean an opportunity to sell premium, it's not a gimme however. Ratio spreads, such as xmas trees, can blow up in your face. It's often better to use limited risk plays like short cal spreads, etc., as you are well aware.
Happy holidays.
wee
You are correct that there are often opportunities to sell vol spikes in individual issues and also I like the idea of balancing short/long vega exposure across your portfolio. I just meant to observe that, in terms of the general market, vols are quite low now as we chug higher without a meaningful correction.
Now, if you have identified a special situation, such as RMBS, and you know the stock, how it trades, and you understand the risks underlying the fundamentals driving the vols higher, great, go short some vega. I just would caution people that high vol may mean an opportunity to sell premium, it's not a gimme however. Ratio spreads, such as xmas trees, can blow up in your face. It's often better to use limited risk plays like short cal spreads, etc., as you are well aware.
Happy holidays.
wee
Wee,
Yes, I'm very aware of the risks involved and I feel I went out of my way to make this clear to everyone that this spread is riskier then short time spreads, where I dedicated an entire thread to, and not as risky as selling outright straddles or strangles. I was merely trying to expose people on this thread to a more aggressive way to be short vega. I can't hold people's hands and watch them trade, that is up to them. I just thought I would share with them a very powerful strategy to profit from declining vol.
Hello Mav, Hello Wee!
From my point of view Mav`s threads are always very useful and inspiring to me. So a big thank you to you, Mav! Keep it going!
But i also appreciate such posts as from you, Wee, `cause it`s also useful to hear a second opinion.
`Cause i too trade index options (dax) i can understand wee`s objection. I think the main point here is not the underlying, but the volatility in the product.
Please correct me if i`m wrong... i`m still a newbie, just learning...
Nice one to you!
From my point of view Mav`s threads are always very useful and inspiring to me. So a big thank you to you, Mav! Keep it going!
But i also appreciate such posts as from you, Wee, `cause it`s also useful to hear a second opinion.
`Cause i too trade index options (dax) i can understand wee`s objection. I think the main point here is not the underlying, but the volatility in the product.
Please correct me if i`m wrong... i`m still a newbie, just learning...
Nice one to you!