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riskarb's trading journal
- Thread starter riskarb
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Thanks. My strategy has recently changed to not include any bull puts in my credit spread trades because at my present options understanding level and options experience level I am unable to mitigate the impact of a black swan event on my credit spread portfolio. However, I intend to study your suggestion and paper trade it and may get back into bull puts.
Do you think it's possible to use greeks (say gamma, theta and vega) to quantitatively decide when the risk is too high in a credit spread and to consider adjusting or just closing the spread. I'm talking about a SPX spread that started out as FOTM and is potentially facing trouble as the underlying approaches the short strike. Since gamma is negative and theta is positive, I'm not sure if one could come up with an equation or greek-based "rule of thumb" that one could use to either adjust or get out. Right now in OC's forum we typically use a trigger of 15 points between the SPX and the short strike to consider adjusting. It's unclear at what point in time this is valid (I think 2 or more weeks till expiration of a front-month spread). With less than one week, then it might be a 10 point or less differential. Of course one has to be cognizant of general market conditions.
Just thought I would solicit some advice before I spend a lot of time trying to see if I can come up with a "model". Or am I "barking up the wrong tree" and my time would be better served studying hedging strategies.
Do you think it's possible to use greeks (say gamma, theta and vega) to quantitatively decide when the risk is too high in a credit spread and to consider adjusting or just closing the spread. I'm talking about a SPX spread that started out as FOTM and is potentially facing trouble as the underlying approaches the short strike. Since gamma is negative and theta is positive, I'm not sure if one could come up with an equation or greek-based "rule of thumb" that one could use to either adjust or get out. Right now in OC's forum we typically use a trigger of 15 points between the SPX and the short strike to consider adjusting. It's unclear at what point in time this is valid (I think 2 or more weeks till expiration of a front-month spread). With less than one week, then it might be a 10 point or less differential. Of course one has to be cognizant of general market conditions.
Just thought I would solicit some advice before I spend a lot of time trying to see if I can come up with a "model". Or am I "barking up the wrong tree" and my time would be better served studying hedging strategies.
Quote from riskarb:
Correct. You're paid for selling bear-stops... you can replicate the hedge as very little loss of edge via -delta bear reversals. I would always sell those verticals with a R/R.
Riskarb:
Since you don't follow M/A or graphs, what indicators are you using to forecast an upturning bounce?
Intuitively and graphically, I would agree the sell off is overdone. However, you likely are using specific mathmatical indicators.
Since you don't follow M/A or graphs, what indicators are you using to forecast an upturning bounce?
Intuitively and graphically, I would agree the sell off is overdone. However, you likely are using specific mathmatical indicators.
Quote from rallymode:
If its not too much trouble, could you give an example? Say you wanted to hold you last risk reversal a few more days betting on a stronger bounce, how would you have compensated for the risk on the short put side?
Don't mean to pile up on you with questions on a weekend :eek:
The intraday trade used a one day, 2 sigma strike placement. I would calc 2 sigmas based upon your expected holding period; of course the deltas will decrease as a function of a larger distro.
You can adjust the net-deltas/gammas based upon your confidence in the signal... i.e., buy large deltas which will reduce the VaR on your puts slightly. Understand that all the r/r move pretty quickly, regardless of strike-deltas.
It's ok, kid is sleeping and I'm sitting on the deck with the laptop on my new travelchair. Love this thing: http://www.travelchair.com/2189.html#
Lounge lizard, salt n pepper.
Quote from rdemyan:
Thanks. My strategy has recently changed to not include any bull puts in my credit spread trades because at my present options understanding level and options experience level I am unable to mitigate the impact of a black swan event on my credit spread portfolio. However, I intend to study your suggestion and paper trade it and may get back into bull puts.
Do you think it's possible to use greeks (say gamma, theta and vega) to quantitatively decide when the risk is too high in a credit spread and to consider adjusting or just closing the spread.
Just thought I would solicit some advice before I spend a lot of time trying to see if I can come up with a "model". Or am I "barking up the wrong tree" and my time would be better served studying hedging strategies.
There are kinks along the gamma slope which offer an advantage, but it's a minor benefit. Increase or decrease in vol[invert for gamma], time to exp, etc... A gamma/theta ratio is of little use due to the huge risk-reward and limited $theta.
There is no way to adequately hedge a deep vertical w/o losing on the replication.
Quote from TraderRobb:
Riskarb:
Since you don't follow M/A or graphs, what indicators are you using to forecast an upturning bounce?
Intuitively and graphically, I would agree the sell off is overdone. However, you likely are using specific mathmatical indicators.
Gut, intuition, tape, and an email received from my egghead friend with a program similar to inventure's ranger. The egghead-trades are all interday strats, so no help was received with the last two reversals posted in the journal.
Quote from riskarb:
It was a paper on a fission trigger model using a centrifugal, declining, sub-critical mass into the fixed, sub-critical pair. It was a silly design thought to replace the conventional "soccer ball" fission trigger. My buddy and I spent very little work on it.
I should start spending some time on it. Just that I am a lazy bum when it comes to projects with far off deadlines like this.
Quote from mahras2:
I should start spending some time on it. Just that I am a lazy bum when it comes to projects with far off deadlines like this.
Yeah, exactly my issue. Who wants to spend their Summer working on stuff like that. We would've placed in the top-5 if we'd not blown it off.
The design is actually pretty amazing; small, self-contained, no HEs and no detonation-var related to krytron delays on the implosion [lead-length].
Quote from riskarb:
You can adjust the net-deltas/gammas based upon your confidence in the signal... i.e., buy large deltas which will reduce the VaR on your puts slightly. Understand that all the r/r move pretty quickly, regardless of strike-deltas.
Got it. Pretty much, the shorter the time frame the safer. Thanks for the input, look forward to your next trades.
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