@botpro Twice now ive watched you argue nonsensical positions against some of the best sources of information on this site. If you go back to the 2000's, you'll see a lot more discussions regarding professional automated trading. These conversations no longer take place here, at least partially because talented traders don't want to argue with novices. I see how you argue and believe you know better than these guys, so I doubt you'll listen to me, but consider the old adage about having two ears and one mouth. I promise you, you'd be better off reading all of @Martinghoul 's old posts than trying to convince him you know something about option trading he doesn't. This site is not an opportunity for petty arguments to me as it seems to be for some people; it's a place I come to learn. Please respect the people who use this site as such by not chasing away the good traders.
Trading Volatility
- Thread starter ironchef
- Start date
Why not?
Buy High & Sell Higher is better than Sell High & Buy Higher.
MAX ASYMMETRY & MAKE IT CONVEXBuy High & Sell Higher is better than Sell High & Buy Higher.
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Well, as newwurldmn mentioned, there is some evidence to suggest that volatility is mean reverting (in fact, that's what many popular stoch vol models, such as Heston, are based on). If you believe this, you're much more likely to sell lower if you buy high.Why not?
Buy High & Sell Higher is better than Sell High & Buy Higher.
I have a long post so please bear with me.
I want to understand what everyone is talking about in layperson's language by using an example:
If I am long a Call, I have a situation with positive delta < = 1 depending on OTM, ATM or ITM. Also, gamma, the second derivative is positive: When the underlying goes up, my call value goes up and the delta also goes up. That was what everyone meant by having a positive gamma?
I have several comments and questions:
1. I do nothing and hold the long Call till expiration. My profit/loss = Final stock price - strike - Call premium.
2. If I delta hedge, when I have a long Call, I hedge with short stocks = delta x # of shares. When the stock price goes up, my delta goes up I sell higher price stock to keep delta = 0. When the price goes down, I buy lower price stocks to keep my delta = 0. In effect I am buying low and selling high so each movement gives me profit.
3. Also, the higher the volatility the bigger the movements of the underlying and the higher my hedging profit (selling way higher and buying way lower). I think botpro was not entirely crazy when he said to go long in a high volatility environment if you wanted to delta hedge.
4. What is my final profit at expiration if I delta hedge? One factor should still = Final stock price - strike - Call premium. How about hedging profit? Can it be predetermined using IV, etc.? Or is it path dependent like someone mentioned in a different thread?
Any comments will be greatly appreciated. I am eager to understand and join your club.
Thanks.
I want to understand what everyone is talking about in layperson's language by using an example:
If I am long a Call, I have a situation with positive delta < = 1 depending on OTM, ATM or ITM. Also, gamma, the second derivative is positive: When the underlying goes up, my call value goes up and the delta also goes up. That was what everyone meant by having a positive gamma?
I have several comments and questions:
1. I do nothing and hold the long Call till expiration. My profit/loss = Final stock price - strike - Call premium.
2. If I delta hedge, when I have a long Call, I hedge with short stocks = delta x # of shares. When the stock price goes up, my delta goes up I sell higher price stock to keep delta = 0. When the price goes down, I buy lower price stocks to keep my delta = 0. In effect I am buying low and selling high so each movement gives me profit.
3. Also, the higher the volatility the bigger the movements of the underlying and the higher my hedging profit (selling way higher and buying way lower). I think botpro was not entirely crazy when he said to go long in a high volatility environment if you wanted to delta hedge.
4. What is my final profit at expiration if I delta hedge? One factor should still = Final stock price - strike - Call premium. How about hedging profit? Can it be predetermined using IV, etc.? Or is it path dependent like someone mentioned in a different thread?
Any comments will be greatly appreciated. I am eager to understand and join your club.
Thanks.
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Yes and when you sell calls, delta hedging works against you: Buy high sell low.
Yes Martinghoul aka Captain Obvious that is correct.
Prices go up ...... prices go down. That's what volatility is.
That was directed to botpro whose knowledge of options is like no one else's.
Volatility is more about variance than ups and downs.Yes Martinghoul aka Captain Obvious that is correct.
Prices go up ...... prices go down. That's what volatility is.
