You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Premium Sellers vs. Option Buyers
- Thread starter Squilly_D
- Start date
If you want to short overpriced options safely you have to buy way OTM "garbage" options for insurance against a 87/flash crash scenario
ex: if you think the AAPL 480 put is overpriced, you can short that but buy the 400 or something like that. That way you know the most you can lose
This is the approach endorsed by long-term options veterans like atticus who survived lots of these big events
ex: if you think the AAPL 480 put is overpriced, you can short that but buy the 400 or something like that. That way you know the most you can lose
This is the approach endorsed by long-term options veterans like atticus who survived lots of these big events
Better hedge is to be small. You can't claim to sell insurance and then not be able to payout when the storm hits.
Quote from Maverick74:
Shooter, I think it varies by traders style. Some guys are very astute at position sizing and adding to a good winner instead of giving in to the urge to sell and take a quick profit. Some guys simply have more patience, so they don't add size but they hold it longer. Some guys are really good at assessing opportunity. They just for some reason feel better about trade XYZ and are going in with more conviction. If I had to point to a trader here on ET to study that behavior, it would be Rearden Metal.
The hardest part is really the psychological part. Most guys have very high levels of anxiety holding size or holding a winner for long periods of time. The truly great ones can do both. Any schmuck can take a tick out of the market. Few can truly fully capitalize on great trades. Read "The Big Short" about guys with macro views who were NOT looking to make a tick and had the courage of their convictions to ride out their trades to their proper fulfillment. The Chapter on Dr. Bury was alone worth the price of the book.
word.
Quote from Daal:
If you want to short overpriced options safely you have to buy way OTM "garbage" options for insurance against a 87/flash crash scenario
ex: if you think the AAPL 480 put is overpriced, you can short that but buy the 400 or something like that. That way you know the most you can lose
This is the approach endorsed by long-term options veterans like atticus who survived lots of these big events
So a spread basically?
Only problem is, spreads allow you to overleverage. They have less theta, require more risk for the same return %, and if it drops below your long strike you are screwed. A short spread is like a long stock at X with stoploss Y. A naked short put is just long stock at Y. The naked short put has less risk.
As newwurldmn said, it's better to just stay small and relax. It's even possible to (shock) limit the risk w/ a normal stoploss like you would a stock position. For some reason people assume that when you're short option you can't buy it back and realize a loss at a % tolerance draw down.
Quote from Maverick74:
Right I'm not endorsing any strategy here to buy or sell premium. I usually only comment on these broad theories that are put out there that selling risk has some built in edge. Edge is a little harder to come by then that. LOL.
If someone buys a protective put to sleep better at night and he's overpaying for this put, then the seller of that put is expected value positive.
Quote from Squilly_D:
Discuss!
Perhaps also try this thread: best ways to go long/short volatility...
http://www.elitetrader.com/vb/showthread.php?s=&threadid=248602&perpage=40&pagenumber=2
Quote from sle:
Being long vol at the wrong time is just as bad as being short vol at the wrong time. A number of people blew up last year being long all sort of risk premium (vega, gamma, var switches) - all of them were playing for the repeat of 2008. No matter how you go about it, you can get fucked. To quote:
"Those flying fish, they're not leaping for joy, they're jumping in terror. "
Quote from sle:
Obviously, I don't know the exact details but I heard that he was "alowed to resign" (instead of being fired for cause) so he got to keep his unvested stock. I guess thats what they referring to as "back pay". It was a management-approved trade, he was simply structuring/executing it so it's fair. Also, he probably had a lot of interesting things to share with the world had they decided to actually wreck his life by firing him for cause.
To be frank, I doubt there was ten million dollars worth of unvested stock (he was an executive director, not even an MD), but if there was, it's not worth much by the time it vested. The stock was worth 65ish in 2007 and over the next 3 years it went to 20-handle, with a nice little stop around 10 in 2008.
Serg. I asked for you when I saw a friend at Citi and he said you'd left? Drop me a PM.