Options.,... Argh... no more!!

[TheDawn]

Im guessing you never worked at a major IB....

Most of the quants as brilliant as they may be,are a bit "disconnected" from actual trading/reality ,while the head the trader is the King of the Jungle,in this case Meriwether...They make the calls,not the quants..

Meriwether was a god like figure at Solly and could do no wrong...or so he thought...

So it is an issue of overtrading, one of the biggest trading pitfalls facing us retail traders.

 

[taowave]

Yes,I am typically long 1 short 2/3..Rarely backspread,except when I roll my long call strike up.or long put strike down...

I believe/hope for sticky delta....

FWIW,I am essentially a market maker and if I get legged on the short side.I scramble very quickly into a ratio...And I limit ratios to large cap liquid names,much larger on the upside...

Hey Taowave I see you mention a bit in your posts about doing ratios. Are you going long closer to the money and short the wings or like a backspread? Do you usually do 1:2 or something else?
Thanks

 

[taowave]

If I remember correctly,Meriwether was leveraged something like 50-1 and grinding out 50 bps per trade..Over-leveraged was the issue

So it is an issue of overtrading, one of the biggest trading pitfalls facing us retail traders.

 

[getthatintoya]

Yes,I am typically long 1 short 2/3..Rarely backspread,except when I roll my long call strike up.or long put strike down...

I believe/hope for sticky delta....

FWIW,I am essentially a market maker and if I get legged on the short side.I scramble very quickly into a ratio...And I limit ratios to large cap liquid names,much larger on the upside...

Is there a particular delta you like to have your long and shorts at?

 

[TheDawn]

You can have delta by being long the guts of a box..Think about it.You tilt the deeps to have the desired Delta.A box is flat,the guts/wings most likely have delta

If i read it correctly,he is long a DITM Call and Put in the direction of the trend...

Essentially long the strangle..Not sure why you would want to trade the deeps,but I cant find his post..

Not for me

He is probably trading the deeps for price arbitrage i dunno.

 

[TheDawn]

If I remember correctly,Meriwether was leveraged something like 50-1 and grinding out 50 bps per trade..Over-leveraged was the issue

Over-leveraging for overtrading. When you have so much exposure that a financial crisis can take you completely out, you have overtraded.

 

[newwurldmn]

Not if the premium collected is greater than the alternative capital gain from being long stock.

why would you want to be long a stock that you expect to rally less than the premium of the put.

if you have the view that the stock won’t rally much, you shouldn’t want to own it.
But now you a view on volatility (to my earlier post) and selling a straddle might be a good trade.

 

[newwurldmn]

Yeah but you would think that a guy that invented the option pricing model would know how options would work, even with leverage. I mean this is the guy who told us how options are supposed to be valued according to how they would behave. And he himself would lose money trading in them? We are all trading options according to what he taught us for chrissake.

read when genius failed. It’s a fascinating story.

the didnt blow up because of options. They blew up on three things:

Bond spreads blew out
They were the largest short in spx variance.
They understood all the Greeks but one: hubris. (To quote an ex-colleague of Taos)

 

[TheDawn]

read when genius failed. It’s a fascinating story.

the didnt blow up because of options. They blew up on three things:

Bond spreads blew out
They were the largest short in spx variance.
They understood all the Greeks but one: hubris. (To quote an ex-colleague of Taos)

I am sure the book is fascinating but to me, there is no "genius" in trading. Trading is just risk management. Everybody is on borrowed money. Eventually everybody gives back. It's just a matter of when. Lehman Brothers lasted for 161 years and Bears & Sterns toughed it out for 85 years. The goal is trying to last as long as you can and make sure it doesn't happen in your lifetime and/or the lifetime of as many of your descendants as possible.

 

[newwurldmn]

I am sure the book is fascinating but to me, there is no "genius" in trading. Trading is just risk management. Everybody is on borrowed money. Eventually everybody gives back. It's just a matter of when. Lehman Brothers lasted for 161 years and Bears & Sterns toughed it out for 85 years. The goal is trying to last as long as you can and make sure it doesn't happen in your lifetime and/or the lifetime of as many of your descendants as possible.

how does a dumb person practice risk management the same as a smart person?