trading option pitchforks

[cdcaveman]

Derman.. “In physics there may one day be a Theory of Everything; in finance and the social sciences, you’re lucky if there is a usable theory of anything.”

 

[kinggyppo]

Quote from cdcaveman:

thanks... that was quick and easy... i understand all that .. i've heard refferences to derman alot.. i've read all of taleb...
i understand alot of the concepts.. i just don't get all your abbreviations... and i'm going to loiter where ever i want.. haha i'm learning! theses are genearlly where my thoughts run..

to figure out: how to be short a large numbers of small moves and be long a really small number of really big moves. in such a way to take replicate and take advantage of a distribution of a high peak with fat tales. What should be the ratio of small moves to large moves. How small and how often are the small moves. How large are the black swan jumps or large moves and how often do they occur. Can you be short the noise of the market and long the stock market crash in such a way to make money on the routine noise and lots of money on the jumps (crashes) ..
Thats whats rolls around in my head.... VOLATILITY


those are the things i generally am trying to quantify!

I have found that studying binary options helps with american option constructs. Again there is a whole other language which can be confusing,
consider that when you take a straight up bet for the Cubs to lose you are taking an all or none binary bet so its a simple construct. I would avoid binaries with any firm out of Cyprus....


http://en.wikipedia.org/wiki/Option_style

 

[cdcaveman]

i only trade plain vanilla american options..... i like the convexity you can create with their payoff structure..

 

[kinggyppo]

I have found that studying binary options helps with american option constructs.

 

[atticus]

Quote from kinggyppo:

I have found that studying binary options helps with american option constructs.

Curious, in what way? I've not other than the vanilla vertical vs. the Euro-style KI/barriers.

 

[atticus]

Quote from atticus:

TZA has a nearly linear 300bp/handle call skew. I'd prefer to see more curvature, but it's the high-volume 3x and $1 strikes. Short the July 24-strike PF at $6.47. Risk to strike (2*$21 strike) at $6.80.

Short 20D per pitchfork, so a bit of a bull (bear TZA) combo. 1000bp in vol-edge over the ATM (8100 vs. 7100 vols). Grain of salt applies on a 3x ETF. Var is overstated on anything over a week or two in duration. They always overshoot, as they have today. A MR dream over 30-60 day hold.

$6.03 last marked to mid/FV, gain of $0.44. $1.84 in extrinsic remains. Would look to cover on tomorrow on any SPX drop of 5 or more:

 

[kinggyppo]

Quote from atticus:

Curious, in what way? I've not other than the vanilla vertical vs. the Euro-style KI/barriers.

to me the binary pricing strips out alot of unnecessary inputs, if you price a very short term option with a binary the results are quite similar, I was responding to cd's post regarding vol. It is just an input albeit a very important one. I think people get lost studying the greeks, so you end up spending gobs of time on the inputs, to me its what's the position, what's the trade.

 

[atticus]

Quote from kinggyppo:

to me the binary pricing strips out alot of unnecessary inputs, if you price a very short term option with a binary the results are quite similar, I was responding to cd's post regarding vol. It is just an input albeit a very important one. I think people get lost studying the greeks, so you end up spending gobs of time on the inputs, to me its what's the position, what's the trade.

And the relation of payout to moneyness?

 

[kinggyppo]

Quote from atticus:

And the relation of payout to moneyness?

not to go off topic but in the straddles thread falcon thought because
he had a winner on a long straddle, thought he had found the grail, he didn't understand his gain was simply due to an increase in vol/vega. I don't think alot of retail guys realize you can simply isolate vol thru a simple calculator. Its too bad binaries are either ponzi type click here firms or OTC with no real access to smaller players.

 

[cdcaveman]

luck and randomness have so much to do with things its sick! thats why i always try to enable myself to have limited risk and unlimited reward through backspreads, and long vol trades...