Options Trader Bets $16.6 Million on 9% S&P 500 Rally

[jeb9999]

Quote from Safilo:

You know what I meant...and I don't care what the exact numbers were. It was an approximation. Each minute you spend over-analyzing is potentially $1,000,000 less in your pocket.

No, I don't know what you meant. I can only go by what you actually said in your post.

There is over a 50% difference between 33 and 50 points a month.

1902 at expiration is a losing trade.

1970 at expiration is a very nice winner.

You don't care what the exact numbers are, but the trader with the 17,800 1925 calls sure does.

I doubt the buyer picked the 1925 strike price by throwing darts.

 

[tradingjournals]

Quote from sle:

. He is betting that either implied volatility is going to increase (re-striking of the vol surface as we rally further, additional risk coming to the market etc) or that S&P realises over 10 vol from today to march expiration.

I think his hypothesis is a solid one. How does the dealer protect himself?

 

[xelite777]

Quote from Safilo:


I think these tools who sit around analyzing charts all day, drawing lines all over them believe they have some "insight" when in reality you can choose stocks, calls, puts or any other position just by throwing darts at a cork board and get about the same level of performance.

Obviously you have no business trading, but please come back in this forum when you are ready.

 

[tradingjournals]

Quote from Safilo:

We? No, I think you mean YOU don't know...let's try this one more time...

He chose 1925 because that's where he thinks SPX should be ITM in March if it continues to gain as it has been in 2013.

Whether or not he hedged this position is irrelevant to the point of why he selected this expiry and strike.

SLE wrote that he bought Volatility at 9.

March Vix futures are around 18 (double of 9).

 

[tradingjournals]

Quote from sle:



Going into the whole debt cap I was long Nov 1750 calls - I had almost zero expectation that we get there, but i certainly was sure we gonna realize more then 9.5 which is where I bot it.

So you were also short SPY?

 

[sle]

Quote from tradingjournals:
Why do people sell volty below 10 (even OTM call strikes)? If one looks at history, as soon as it hits 10 at the money, the market retreats and volty rises.

Well, while the risk-reward is assymetrical, chances are that the market is going to realize less then 10 in many cases. Also, there are so many call overwriters out there that call vol is frequently cheap.

Quote from tradingjournals:
I think his hypothesis is a solid one. How does the dealer protect himself?

The dealer probably has other sh*t on the books that would help him - maybe he's long variance, maybe he's long vega elsewhere etc. Usually, you would put up a trade of that size you must have some inventory that you are trying to off-load or something along these lines.

Quote from tradingjournals:
SLE wrote that he bought Volatility at 9.

March Vix futures are around 18 (double of 9).

Right, but march vix is a forward, while he's exposed to term strike vol. Anyway, he's made a reasonable chunk of change on that already, vol is up about 1/2 vol in that part of the curve.

 

[sle]

Quote from tradingjournals:

So you were also short SPY?

Yup, i think this was 20ish delta at the time.

 

[Safilo]

Quote from tradingjournals:

What makes you sure that his real position is NOT a put? A smart put buyer might do that because higher strike has less volty, and volty is also historically cheap.

History. Even during the obamaconomy the largest single intra-day loss has been under 9% and the largest one day gain has been around 10%...the SPX is inherently not volatile so on average. Your assessment that its volatility is "cheap" at 10% is incorrect; it's actually spot on.

Quote from sle:

Dude, it's a delta-neutral trade, it was put up tied by a dealer . He is betting that either implied volatility is going to increase (re-striking of the vol surface as we rally further, additional risk coming to the market etc) or that S&P realises over 10 vol from today to march expiration. If that does not happen, he will lose money even if SPX is at 2000 by march expiration.

If the SPX starts rallying before his chosen exp, his position will gain value...and if the SPX starts rallying at a rate that is greater than it has been up to now, as many expect it to since QE isn't going away, it is likely that IV will increase as will the value of his position. It's nearly at 1790 as i'm writing this, up 6 points so far.

Now does pointing out minutia make you feel like you have a better understanding of what's going on or do you think it's productive to get hung up on the obvious? I think you need to realize that successful traders are not burying themselves in stats and theory...their moves are, whether the admit it or not, simplistic.

Going into the whole debt cap I was long Nov 1750 calls - I had almost zero expectation that we get there, but i certainly was sure we gonna realize more then 9.5 which is where I bot it.

So you're gambling, and yet you try to present yourself as a legit trader because you talk about stats? Thin line between the two. I'm not taking any protracted positions in the market until the government stops artificially manipulating it. Do you really thing the "value" is there to support a 1800, 1900 or 2000 SPX? No, the underlying economic activity of the companies has been relatively flat since 2009 and "the worst president in the history of the US" is still at the helm. Expect more tears.

 

[sle]

Quote from Safilo:
If the SPX starts rallying before his chosen exp, his position will gain value...

ok, for the last time - he is short delta against the position. if S&P rallies, his option position will make money and his futures position will lose money. In fact, if the market drops 10% tomorrow, he will make money on his position and if the market gains 0.25% every day (which will take us to almost 2200 on S&P) he will actually lose money.

Quote from Safilo:
you're gambling, and yet you try to present yourself as a legit trader because you talk about stats? Thin line between the two. I'm not taking any protracted positions in the market until the government stops artificially manipulating it. Do you really thing the "value" is there to support a 1800, 1900 or 2000 SPX? No, the underlying economic activity of the companies has been relatively flat since 2009 and "the worst president in the history of the US" is still at the helm. Expect more tears.

One more time. It was a volatility position, not outright. I bought 1750 strike calls and sold 20% delta against them. So, for practical purposes, I only cared that I bought the option with implied volatility of about 9.5 which I deemed cheap - as long as we realized more over the life span of the option, i would make money.

 

[newwurldmn]

You are wasting your time sle.

He thinks he is smarter than you. There's no reason to convince him otherwise.