The Beauty of Options - Portfolio Insurance at a Discount

[.sigma]

Oh, one more quick note. Someone mentioned that you have exposure if there is a grind down market. What I really like about my strategy is that I'm able to "scalp" against my deltas with futures and/or micro futures to adjust my deltas. So I need any delta adjustment, I just go into the futures market and buy or sale what I need.

You ever watch the old thinkorswim lessons with Don Kaufman? He had a segment called “building inventory and managing risk”

basically he’d have many many open strikes within the same products just at different strikes and expirations, and he would be constantly closing and redeploying capital opening new positions. I feel like this is similar to what you do? You only trade a few underlying correct!?

 

[Sweet Bobby]

i love it.. you are grinding a lot of the old heads gears with posts like these.

but bro, what happens when shit hits the fan? And I’m not talking about a crash... just what do you do when you sell some puts at the wrong time and the market dips and starts breaching? Just curious. Cheers Roberto

Hello Sigma,

I was totally flat when I began building my hedge on February 3,2020! It didn’t take long for the shit to hit the fan! I had some naked puts that went against me, but I was able to close them near a 2x loss, while my hedge rose from the grave like a bloodthirsty monster giving me a 117% portfolio return in just a few days.

While the idiotic trolls keep telling me that I’m picking up pennies in front of a steamroller, they don’t realize that my bloodthirsty hedge is driving the steamroller, ready to pounce on anything that tries to take sweet Bobby down during a market correction. Like right now, my ratio of short puts to long puts in my portfolio is .45! If shit hits the fan right now, Sweet Bobby becomes even wealthier through meteoric returns. So I’m hoping the market crashes!

Now those who don’t understand me come back with comments like. “I’m praying for you Sweet Bobby” knowing that they hope I blew out my account. Little do they know that I’m praying for a crash. And if the markets keep going up, then I keep cashing in those short puts. Woo! I feel like Rick Flair! Though I look more like Dusty Rhodes.

 

[Sweet Bobby]

that’s amazing man. May I ask what specifically did you do? Like when the market started to “crash” around 2/25 were you already in the market? (Assuming you were), didn’t your already open puts get breached? Or no? Also what did you do strategically as the market continued to implode and the world end? Let’s get a diatribe going my man! Another classic on the way. Baron should be proud of Young Noble Bobby

Baron actually should reopen the Karen the Supertrader Tastytrade hybrid thread that I started years ago. They closed it when I fooled my detractors into believing that I blew up my account! Ha, those idiots fell for it hook like me and sinker! So I closed my portfolio in February after the correction, then opened it back up before I closed it again in March for my 208% profits. Ever since, I’ve been building back up so that I can buy my new Ford Pinto when the market shits itself again. And it will! Mark my words. I get lottery returns about once or twice a year. Two times already this year, with at least one more on the way.

 

[Sweet Bobby]

You ever watch the old thinkorswim lessons with Don Kaufman? He had a segment called “building inventory and managing risk”

basically he’d have many many open strikes within the same products just at different strikes and expirations, and he would be constantly closing and redeploying capital opening new positions. I feel like this is similar to what you do? You only trade a few underlying correct!?

Don Kaufman, I pay that dude a lot of money!

I only trade ES, SPX, and a bit of NQ. Check out just a few of my many positions. Sorry I couldn’t capture all of them on my phone. But you get the picture. I have ES positions in virtually every expiration 150 DTE and lower.

 

[VolSkewTrader]

Hi VolSkewTrader, could you please elaborate on ... "In April, even though your long front month IVs crashed relative to your short back month IVs, your overall position benefitted from a massive rally, and your front month gamma saved you from the term structure IV collapse"

1-Is he not overall long gamma in his portfolio?
2-So, why in that particular April occasion he benefited from the front month gamma? (I mean should he not suffer from being long gamma in a market that grinds higher and higher)?
3-The speedy V-bottom helped him?


Thanks for explaining.

1- Yes. He's long the more gamma-rich closer-to-expiration puts, short the more vega-rich longer-dated puts
2-Long gamma positions benefit from large one way moves, even if we're grinding higher, as long as you're letting your deltas ride enough to cover the theta. The more we rally the more stock or index futures he synthetically gets long, and vice versa on a break.

- Being long gamma only sucks if we're stuck in a crappy tight range and you paid too much (high theta bill) for the gamma to begin with.​

3- Being long gamma on the "speedy V-bottom" was a huge winner (even with his overall short vega position), given the size and velocity of the move. As long as he covered some of the deltas on the way down before the big rally, he should have cleaned up.

 

[shh]

1- Yes. He's long the more gamma-rich closer-to-expiration puts, short the more vega-rich longer-dated puts
2-Long gamma positions benefit from large one way moves, even if we're grinding higher, as long as you're letting your deltas ride enough to cover the theta. The more we rally the more stock or index futures he synthetically gets long, and vice versa on a break.

- Being long gamma only sucks if we're stuck in a crappy tight range and you paid too much (high theta bill) for the gamma to begin with.​

3- Being long gamma on the "speedy V-bottom" was a huge winner (even with his overall short vega position), given the size and velocity of the move. As long as he covered some of the deltas on the way down before the big rally, he should have cleaned up.

I am confused about something. How can those puts Sweet Bobby posted, gain gamma in April and May? Isn't it that market is getting further and further away from his put strikes? Therefore, his gamma is constantly shrinking as market grinds up; so can we confidently say his overall IV losses were offset by his gains in put gamma? Maybe it is the delta hedging which you just mentioned that helped him much more than the put gamma......I am just trying to learn.

For clarification, all my questions are regarding the post crash (April and May) time.

Thanks again

 

[VolSkewTrader]

I am confused about something. How can those puts Sweet Bobby posted, gain gamma in April and May? Isn't it that market is getting further and further away from his put strikes? Therefore, his gamma is constantly shrinking as market grinds up; so can we confidently say his overall IV losses were offset by his gains in put gamma? Maybe it is the delta hedging which you just mentioned that helped him much more than the put gamma......I am just trying to learn.

For clarification, all my questions are regarding the post crash (April and May) time.

Thanks again

Yes, on the rally his gamma exposure shrinks as the market moves away from his long puts, but his deltas are always moving in his favor when short the calendar...just increasingly less in his favor as the market rallies away from those strikes. His long delta position on the rally may or may not have been enough to cover losses on the shrinking IV differential between the front and back month. That would depend on how wide the IV differential is between the two puts and also the vegas between the two puts. I'm also assuming the puts are same strike.

During the crash in March his gamma levels peaked as his OTM puts probably became ATMs or even ITMs, which would have left him a crap load of stock or index futures to buy near the bottom. I'm guessing he sold out of his winning put longs instead of buying the underlying against those puts near the bottom. If he wanted to keep the gamma he would have needed to delta hedge to lock in the big gains in his front-month puts. Most traders would have just launched the puts or option premium in another strike to lock in the huge gains. But keeping the gamma probably would have made you multiple times more money given that we were at one point having 10 to 15% ranges in the S&P 500 everyday.

 

[taowave]

Keep in mind he buys alot more of the front month puts..i believe he said he's long 2.5 to 1(.40)..

Not sure how he is not bleeding with no upside disk

 

[VolSkewTrader]

He's net long mostly high-skewed put wings that will underperform unless we a get a convincing break below 3000. Position bleeds money and doesn't provide any protection if market stays rangebound or grinds lower. Overall position is a big loser if we creep back down toward 3000 and sit.

 

[Magic]

Yeah, sounds like hell for a long-term strategy, especially ratio’d higher on the front, and on the index. Bad strategy imo unless you are really good at predicting crashes. Also important to note that unless you have some edge trading relative value on term structure it’s probably a coin flip whether you’re even adding to your risk adj returns with the added complexity or not.