Vega trading

[VIXTrader]

Agreed. To each their own...it's what makes a market. Although I will say that I've never encountered a formula quite like Black-Scholes. You're right. It's all wrong. But the best part is that you can plug a bunch of incorrect numbers in it and get the right result -- $!

While it is certainly possible to make money trading when you don't understand the underlying math behind the system, I would say that it's probably not in someone's best interest in the long run to carry these misconceptions.

To say Black-Scholes is all wrong, or that Vega has serious errors is just simply not true. Vega accurately measures exactly what it's supposed to in a snap shot in time, and Black-Scholes is completely functional and sound as the basis of a market system that is both efficient and predictable. Sorry, but I just have no idea what you two are going on about.

Uncertainty and change over time is not at all the same thing as something being broken or wrong.

I think I get it-but you guys do your own thing and I'll keep pocketing the profits

In my experience, successful traders simply don't talk this way, but I'm glad your raking it in my friend, keep it up

 

[newwurldmn]

He thinks vega is out of whack only because he doesn't understand it.

 

[longthewings]

While it is certainly possible to make money trading when you don't understand the underlying math behind the system, I would say that it's probably not in someone's best interest in the long run to carry these misconceptions.

To say Black-Scholes is all wrong, or that Vega has serious errors is just simply not true. Vega accurately measures exactly what it's supposed to in a snap shot in time, and Black-Scholes is completely functional and sound as the basis of a market system that is both efficient and predictable. Sorry, but I just have no idea what you two are going on about.

Uncertainty and change over time is not at all the same thing as something being broken or wrong.




In my experience, successful traders simply don't talk this way, but I'm glad your raking it in my friend, keep it up

Ok first of all you're taking a lot of liberties here. You're calling me out and you have no idea who I am or what I know or don't know. I am in fact very familiar with the mathematical derivation of black-scholes. I agree with you that BS is still very useful in practice -- it's what I use to hedge every day. But to say that it serves as the basis of an "efficient" and "predictable" market is beyond absurd. If you actually believe the market is efficient, why are you here wasting time in a trading forum? By definition, you are unable to earn superior risk-adjusted returns. Predictable? Really? Are you the one dude out there with the magic model that can "predict" the market? Please enlighten me, how do you compute the probabilities for events that are by definition completely uncertain?

You are the one that sounds like a hack, throwing out buzzwords like "efficiency," and citing Black-Scholes as a market "basis!" Wow....that is some good comedy. Enjoy trading amidst all that efficiency tomorrow!

 

[VIXTrader]

You're just digging a deeper hole for yourself, but by all means don't let the rest of us stop you as it's quite impressive to watch.

I'll state it again for you in case you missed it. While it is possible to earn money given the impressive lack of understanding of the options market you are displaying, it's not an advisable long term strategy. You might want to actually educate yourself on what efficiency and predictability mean with regard to the options market, and how you can use them to profit in the long run over many occurrences. And if you want to compare risk adjusted returns that's fine. 7+ year audited track record, preferably with client money but not required. Any less than that, I don't give a shit what a forum clown thinks of his "tasty bite" account.

 

[JTrades]

There are those who trade profitably without knowing the details of the theory (the "ball players"), and there are those who apply their somewhat erroneous theory profitably (the "Newtons"), then there are the "Einsteins", who know Newton's theory and a little more.

They say trading's not easy. Ascertaining who's who in a forum is not always easy!

 

[longthewings]

You're just digging a deeper hole for yourself, but by all means don't let the rest of us stop you as it's quite impressive to watch.

I'll state it again for you in case you missed it. While it is possible to earn money given the impressive lack of understanding of the options market you are displaying, it's not an advisable long term strategy. You might want to actually educate yourself on what efficiency and predictability mean with regard to the options market, and how you can use them to profit in the long run over many occurrences. And if you want to compare risk adjusted returns that's fine. 7+ year audited track record, preferably with client money but not required. Any less than that, I don't give a shit what a forum clown thinks of his "tasty bite" account.

What lack of understanding have I demonstrated? What hole have I dug? All you've done is state nonsense like Black-Scholes is a "basis" of an "efficient" and "predictable" market. I don't even have to argue with you....the market speaks for itself. The fact that there is a volatility smile proves Black-Scholes is wrong!

 

[VIXTrader]

The fact that there is a volatility smile proves Black-Scholes is wrong!

Oh man, please don't tell me you're actually live trading... Not only are your math skills seriously lacking, but you also seem to have a problem with the English language that we've all agreed upon.

 

[longthewings]

Dude I'm officially done with this thread. You are just a straight up bizarre individual who is for whatever reason quite smug and cozy in whatever fantasy world it is that you're living in. You DO NOT understand the words you are saying and the concepts you are talking about. You may have your own nonsensical definition of market "efficiency," but anyone who actually knows what they're talking about can see right through you. You mocking me for pointing out that the volatility smile proves Black-Scholes is wrong only makes you look like more of a fool, since no one who actually understands this stuff would ever disagree with such a basic option trading 101 fact. YOU. ARE. A. MORON.

 

[cdcaveman]

I haven't been on ET in a while.. but this is exactly how i remember it! haha

 

[jimmyjazz]

Say the 110 puts are trading at 20% and the 111 puts are trading at 21.5%. The options are close enough to each other that they are functionally equivalent securities. Invoking the law of one price, they should trade at similar prices.

Therefore, in most cases you could buy the 110s, sell the 111s, and delta hedge to expiration. You should earn in the neighborhood of 1.5 vegas ON AVERAGE.

I'm new to the concept -- can you clarify something for me? Looking at AAPL, which is priced similarly to your example, if I sell the just OTM put and buy the next farther OTM put, which is a bull credit spread, I see I'm positive 11 delta. So I short 11 AAPL. Now I'm delta neutral, and from the spread itself, pretty close to neutral on gamma, vega and theta. But when I look at the macro PnL diagram, it sure looks like I've taken a short position in AAPL. I guess I'm "locally" delta neutral, but what advantage did I gain? My risk just went to infinity on the upside, when with the spread I was at full profit there. I was bullish with the spread, now I'm overall bearish.

I guess the answer is that I shouldn't neutralize delta when I have a directional view on the underlying? What exactly are the situations that lead one to trade this way -- you are seemingly making your hay with vega, but what leads you to that strategy?