The strikes of the shorts are 50 points higher than the strikes of the longs.
The Beauty of Options - Portfolio Insurance at a Discount
- Thread starter Sweet Bobby
- Start date
So your basically ratio-ed. Short the "meaty" put strikes, and long about twice as many far-out winger, lottery ticket, black swan outlier puts
I never understood the “long term” argument.. so short term ole Bob is good? But long term he’ll “eventually” blow up? I’d rather trade positive skew stats, mentally and monetarily
If you do something blindly for long enough you will be pushed toward the average outcome. Like playing one million hands of blackjack at a constant bet size, almost impossible to be ahead. But sure you can have a hot streak in one session. And if you can forecast those sessions you can have positive expectancy against the long-term average.
Now that he said he's shorting closer to atm and spending on deep otm wings that's a little more benign than short ratio calendar at flat strikes. But still, unless you get an outlier crash while you're holding deep wings, you're just burning profits that could've been in your pocket good luck clearing the thetas on deep otm wings on normal price behavior]. I carry otm premium at ratio on rare occasions so I am not knocking the strategy. To call it free is disingenuous though.
1x2 ratios (backspreads) are a no brainer in a super low vol environment with a flat to negative skew. Unfortunately, that only happens on the call side. When the VIX cash is printing historically low (sub-12) and the smiles are historically steep, then selling 1 ATM @ 10% IV and buying 2 upside calls at 5% IV or less is almost a guaranteed winner.
Whoah, sigma! Ain't nobody blowing up here. Where do you come up with that?
So, I'm not doing a 1/2 ratio. The cool thing is I have pretty big negative theta right now, but the entire package is put on for a credit. I take the income from what I sale and buy long puts at a ratio where the income more than covers the cost. Don't get me wrong, there's no free lunch, and occasionally I do have to buy tranches of puts higher than I'd like, but that doesn't occur that often.
VST,
When you do things like this, do you find capital is better utilized holding positions as short on time as possible while the skew dynamics you’re trading are intact? So the PnL is collected from the gamma? Or further back looking for a shift in vol to occur?
Make up your mind Sweetness 
Earlier post from you
Like right now, my ratio of short puts to long puts in my portfolio is .45!
That's 1x 2.27....
Carry on..
Earlier post from you
Like right now, my ratio of short puts to long puts in my portfolio is .45!
That's 1x 2.27....
Carry on..
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The trades are not entered in a 1/2 ratio. Not at all. Now, I have other trades in the account that are not part of the hedge and I am constantly harvesting short puts and placing new ones. Just because my current inventory is 0.45 does not mean that I enter them in 1/2 tranches. For example, I closed some naked income puts today for profits that I put on last Friday. Because the shorts are gone, my ratio has changed. Now I will carry on after I set your ass straight . . .Make up your mind Sweetness
Earlier post from you
Like right now, my ratio of short puts to long puts in my portfolio is .45!
That's 1x 2.27....
Carry on..