Re: How to trade Vomma

taowave said:
IC,if you are strictly trading direction and using options as a cash substitute,you really dont need to get fancy..Your main decisions will be should you buy 1 80% spot call as opposed to 2 105% calls...And that is "your call",no pun intended:)

At some point,you may want to beta weight your individual option portfoilo and perhaps hedge the downside with SPY options
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In a nutshell that is my approach, using options as a cash substitute. It served me well until now. If I used margin instead of options in this market, margin call would force me to liquidate and there would be no recovery after the mid March low.

At some point I do need to learn some additional option strategies.

I sincerely thank you for your help.

Regards,
 
MKTrader said:
I only had a mediocre grasp of 1st order Greeks when I traded options for a bit. I'm just not sure about 2nd+ order Greeks, though. Is it really helpful or just the stuff engineering/math oriented traders like to analyze to think they're making good trades? It reminds me a little of indicators of indicators...like an RSI of a stochastic to "smooth it" more. In that case you're just getting further from real indicator (price).
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remember, at the core of this these are just PDE’s, a bunch of math formulae..

the first order greeks were originally created for market makers to manage the risk on their books in the aggregate. Then overtime retail started using it, but it was never meant for single trades.

as far as the higher orders, I believe having a basic understanding of how delta moves is great, but knowing how delta moves with time (charm) will help better understand how these Greeks really move. It’s not meant for trade selection, order entry, management, etc... more so for a foundational blueprint of study on how derivatives of derivatives derive values on another.
 
I have found that vega is highly unreliable but in the current market everything is a punt. If you think the Greeks will give you a handle on the prospects of Covid cases( the actual driver) then that is a concern. I've been trading (badly) for 20 years. I think the market is just dumb money being shuffled around, and the best you can do is guess support and resistance. Thereafter trade selection with options is what gives us an edge over the dumb directional money. Of course you can daytrade using options far more cheaply than individual stocks, but for me as a UK trader there is no market for 95% of stocks, so I just trade the index. Since March butterflies have done very well with zero risk beyond the opening debit. Iron condors died some years ago, I reckon.
 
Why do you differentiate between Flys and condors??

Condors are multiple Flys stacked on each other..

Windlesham1 said:
I have found that vega is highly unreliable but in the current market everything is a punt. If you think the Greeks will give you a handle on the prospects of Covid cases( the actual driver) then that is a concern. I've been trading (badly) for 20 years. I think the market is just dumb money being shuffled around, and the best you can do is guess support and resistance. Thereafter trade selection with options is what gives us an edge over the dumb directional money. Of course you can daytrade using options far more cheaply than individual stocks, but for me as a UK trader there is no market for 95% of stocks, so I just trade the index. Since March butterflies have done very well with zero risk beyond the opening debit. Iron condors died some years ago, I reckon.
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If you are putting on 1-3 option positions per name,I coukd easily see trading without Greeks..

It gets much more difficult as you start to have a position on 10+ different strikes and expirys

You obviously couldn't run a short vol book,or not well:)

Windlesham1 said:
Seriously? He's trading on pure luck then-and we know how that goes
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taowave said:
At some point,you may want to beta weight your individual option portfoilo and perhaps hedge the downside with SPY options
More...
After reread this a few times and went back to reread Hull I think I finally appreciate what you wrote: I should hedge and perhaps eliminate the systemic risk if I think I have an advantage in a specific idiosyncratic risk assessment.

If I did that in Feb-Mar, I would have been way ahead by now instead of still nursing some of my losses.
 
At the end of the day,you would most likely be long some sort of strangle ,with correlation risk. You would be taking down more theta and long vol,so you would have to be careful on implied vol..You may want to hedge with put spreads,MAYBE a collar....

ironchef said:
:thumbsup::thumbsup::thumbsup:

I should run some tests on this.
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