Short gamma trade in EBAY

remind me again why xmas trees are better than simple ratios for neg vega plays, e.g. why is (e.g. all calls) buy 1 50, sell 1 55, sell 1 60 better than buy 1 50, sell 2 55's? ratios i like under certain circumstances, esp when i can put them on for zero debit or even a small credit (iv's need to be fat) and at as shallow a ratio as possible.

wee
 
Quote from weewilly:

remind me again why xmas trees are better than simple ratios for neg vega plays, e.g. why is (e.g. all calls) buy 1 50, sell 1 55, sell 1 60 better than buy 1 50, sell 2 55's? ratios i like under certain circumstances, esp when i can put them on for zero debit or even a small credit (iv's need to be fat) and at as shallow a ratio as possible.

wee
More...

Simply a reduction of gamma risk in the trees, but you pay a larger debit(or receive a smaller credit/obviously unlikely). They carry a better vega/gamma, but in essence, they're not superior, any more than any option position is superior to another -- you either have edge, or the lack thereof.

arb.
 
Quote from weewilly:

remind me again why xmas trees are better than simple ratios for neg vega plays, e.g. why is (e.g. all calls) buy 1 50, sell 1 55, sell 1 60 better than buy 1 50, sell 2 55's? ratios i like under certain circumstances, esp when i can put them on for zero debit or even a small credit (iv's need to be fat) and at as shallow a ratio as possible.

wee
More...

Wee,

well, I don't use all calls or all puts, I tend to use both. So I would be long the 50 calls and puts and short the 55/60 calls and the 45/40 puts. I would also be doing this in further out months. My long options would be on the front month.

The reason this is better then the 1 x 2 ratio spread is because it spreads your risk out further, i.e. it allows the stock to move against you more without taking a loss. You also have the added advantage of selling higher vol on the further out strikes. This spread has almost no gamma and is a pure short vega play.

Now the big advantage of this spread such as lets say on ebay, is that you actually want the stock to gap on earnings. If the stock gaps up or down 3 to 5 pts you will do very well because you have long gamma on the front month yet you will profit from the drop in vol on the deferred month options. Now if the stock gapped like 10 or 15 pts then you would get hurt pretty badly although no where near as badly as if you were short just a straddle or if you had ratio spreads on.
 
you guys happy about the BOX? i wish the options markets were more nasdaq-like -- allowing customers to display prices via participating ecn's that improve the NBBO. we could trade directly with each other like civilized men and women. i expect spreads may begin to narrow in any event as cboe retaliates.
 
Quote from weewilly:

you guys happy about the BOX? i wish the options markets were more nazdaq-like -- allowing customers to display prices via participating ecn's that improve the NBBO. we could trade directly with each other like civilized men and women. i expect spreads may begin to narrow in any event as cboe retaliates.
More...

potential for penny spreads? what's not to like? :D

arb.
 
re: price improvement: if some order flow broker improves the customer's price by a penny, i am sure he will put at least that much in his pocket and that the market is about to reverse on the hapless customer. internalization is the ultimate insiders game. where is the market? who knows? it's somewhere inside the "box" so to speak.
 
EBAY @ 6650
Feb $65 Straddle ofer @ $585 (Short from $638 avg.)

I'm going to offset 100 of my synth. short straddles here for $5500up -- 300x remaining.

arb.
 
You must log in or register to reply here.
Back
Top