Well, there you have it. From the horse's mouth, so to speak...
You don't need no delta, no vega, no nuthink!
You don't need no delta, no vega, no nuthink!
Question for all of you actually making a living trading options
- Thread starter monkeyjoe
- Start date
Technically speaking, my mandate covers some delta trading. I also do some relative value stuff like CDS vs equity etc. Fun stuff
Trading volatility using options (as opposed to vix futures or etfs) is really an institutional game. It takes a lot of capital - even with portfolio marging it's hard to generate meaningful returns. In essense, delta-netrial trading removes the inherent leverage that options have and makes for much smoother but also much lower returns on capital.
It's rough for retail. With my small account, I basically feel like I can only make delta bets. Problem is, I feel like I have a much better intuitive understanding of vol because of my background. I've essentially stopped trading the account... just have to wait til I save up some much more serious capital.
On the topic of picking what area to trade, I have a unique position as a retail guy because it's not my full time job. Technically, you could call me an agricultural economist, so if I have any informational edge about the markets it may be in ag futures. However, from what I've seen on the CBOT site, it seems like the options on ag contracts are super illiquid and not traded for hardly any strikes. Bummer.
Wake up! Your Dreaming. The markets, the kind that are the subject of this thread, are never efficient, competition is seldom perfect and often absent (good capitalists hate competition), and information is always asymmetric. So tisk tisk.We can all work together here
One of the reasons I gave up on the game years ago - you could see the writing on the wall. I did have friends doing it - though 2008 helped some retire.
Even the costs of being a simple individual MM are up, and whereas individuals used to be able to compete, the costs of technology have increased, you end up having off the shelf systems which are not really competitive and even the exchanges in some parts of the world are actively trying to get rid of smaller players- they think the big option mm will do the job.
Additionally, while some specific firms used to offer very good portfolio margin accounts, a lot of these guys have minimum amounts of commission required per month in order for them to give you credit.
So unless you want to sit there be long gamma, trade it around and scratch a lot of days/week/months - hoping for black swan events, or another 2008, then its tough.
(One guy I know estimated he needed 15mil in 2011 to set up shop again properly with 2 IT staff for every trader - he could probably afford it but did not seem that interested in it. This is a different ball game)
Trading long vol for increases in volatility value as sle said needs deep pockets as to get set you need to do it in size and be a liquidity provider when everyone is buying or selling. .... not much fun as an individual.
Monkeyjoe - maybe with your background you would be better off setting alerts for the few times opportunities arise.
As a retail trader with some capital, you are probably more flexible then I am - no arbitrary risk limits, no real mandate and no real concerns about liquidity. If you are not trying to get extreme returns, there are a lot of interesting stuff to do. Personally, I've been researching it more as my retirement is looming (3 more years for me and enough is enough).
yeah.
i think the retail stuff is interesting.
look at vix futures, earnings bets, terminal distribution vol trades.
i think the retail stuff is interesting.
look at vix futures, earnings bets, terminal distribution vol trades.
UBS was their largest single investor. Frankly the UBS record when it comes to risk control is not so hot.
I didn't mean to give you the wrong impression - I am definitely not sitting on a pile of money. Mostly I am just super aggressive with putting money in the retirement account (super limited in trading), and my trading account is last on the list in terms of discretionary funds. New house and new kid (i.e., I am very far from retirement) have made the trading account deposits a lot more infrequent. :eek:
Part of my problem is I feel like I do need to seek out extreme returns to make it worth my while to put in the necessary effort of modeling, etc. When I have consulting work it pays far far better than any trading I have done... that's ultimately gonna have to be the way if I am ever to build up some serious trading capital.
That's certainly a possibility. One problem with the agricultural stuff is that government interference makes stuff really hard to predict.. talk about regulatory arbitrage if you could actually figure it out. If I only I could figure out a way to make large bets against farm land in the coming years...
I am also interested in your comment about individual MM's. I have recently started collecting tick/order book data on about 500 or so of the most liquid US equities. Have you heard of anybody doing any sort of rebate trading as an individual trader in the new era (i.e., since the crash)?
Obviously it would have to be HFT/algorithmic -- I see that as a positive actually... I think programming is actually a really good exercise in examining and exposing hidden modeling assumptions. I have been exploring some strategies along those lines that are not quite MM, but would be strategically liquidity providing. Right now it's only preliminary, and safely providing liquidity (in my eyes) likely requires having some sort of long options/long gamma position open. You can't rely on those being statistically cheap enough, but I was thinking that might change if you could both earn spreads and rebate on your scalping.