Quote from cdowis:
I also find the OIH as a nice balance to the RUT. NDX is abit steep for me at the present.
Just curious, do you use multiple strategies on low vs high volty?
Or do you pretty much stick with one strategy. The voly change over the past week has been rather interesting.
We use the same strategy as the OIH and NDX have a weak correlation. What we've found interesting is the premium differences.... but with that difference comes RISK. Even so, they work nicely to Hedge against each other.
Our OIH positions are up 130% ytd on margin, where as our NDX is up 30% ytd on margin. Our funds are appropriated 1:2 ratio.... OIH:NDX.
I say margin... because we trade and profit from the margin used... which is our account size. We could leverage much higher, but at this time.. we feel comfortable at this debt ratio. It does leverage against a retail account about 5:1. Thus, selling premium at a 5:1 ration... allows us to profit fives greater in decay with the HairCut account vs. the retail. And, since you can take in so much more THETA, you can use this to provide upside as well as downside protection.
For Example: The recent pull back exploded VEGA.... we sold NDX OTM calls into the sell off. With yesterdays move up and todays consolidation, the short calls bled huge profits... ie, (5%) while the downside move the last week provided had no effect on our DELTA neutral positon.
With gamma near zero... and Delta slightly negative... the downside is completely protected.. in fact, profitable. The Vega drain.... really what we're looking for.
Now.. without the HC, or downside ... it would have been a huge profit..... but you must be prudent to protect your capital.... so we spend profits to nuetralize the risk when needed.
So, from a capital preservation approach.... we never put the capital at risk.... and allow THETA to cover the DELTA move in either direction. Consolidation days... are very rewarding. Movement days... nuetralize each other over time.
HOpe this helps..
M~
