Vertical Spreads for Aggressive Growth

[rallymode]

Quote from Cache Landing:

I was thinking about it, but the debits to offset really sucked. Also considered opening the bull put side, but same deal. Market was so choppy this morning that I couldn't get a good credit.

oh i am not touching the bear call spreads. I had naked ATM/CTM calls on the ES that im offseting. Remember i told you i was short lots and lots of gamma. Also, have a 1334 barrier that expires on Mon, as you can see this pullback is a big relief for me

I dont know about bull put spreads man, lets not forget its OCT/NOV we are talking about. I'd rather be on the sidelines when it comes to bullish positions here.

 

[Cache Landing]

Quote from rallymode:

oh i am not touching the bear call spreads. I had naked ATM/CTM calls on the ES that im offseting. Remember i told you i was short lots and lots of gamma. Also, have a 1334 barrier that expires on Mon, as you can see this pullback is a big relief for me

I dont know about bull put spreads man, lets not forget its OCT/NOV we are talking about. I'd rather be on the sidelines when it comes to bullish positions here.

Wow, I didn't know you were short THAT much gamma. :eek:

Yeah, I know I should be careful with the bull puts right now. I'm the one on OC's thread that said 1250 by the end of NOV. Problem is that this market is using any excuse it can find to rally. I realize that most of it is just hot air and eventually there won't be enough buyers to support it though.

 

[rallymode]

Quote from Cache Landing:

Wow, I didn't know you were short THAT much gamma. :eek:

I tend to lose my mind once or twice a year and go out on a limb for outsized returns. Could've easily gone the other way.

 

[ryank]

Stupid greek question of the week: I have a CTM put spread where the delta has gotten out of whack (trade has gone against me). If I sell a call spread to balance out the deltas, the gamma gets pretty big. I'll admit, I know just enough about gamma to be dangerous but am still trying to understand how this is going to affect my position. I go from being delta negative to slightly delta positive and then my gamma goes pretty negative. Damn greeks are getting me all confused on a Friday.

 

[rallymode]

Quote from ryank:

I have a CTM put spread where the delta has gotten out of whack (trade has gone against me). If I sell a call spread to balance out the deltas, the gamma gets pretty big.

I wouldnt recommend it. If you really must hedge your delta risk at these levels, it's much better to go long gamma or vega into the direction of your current short gamma risk. That is of course if a simple offset wouldnt be the better choice. Selling more gamma here just to bring in more premium, could be a dangerous affair IMO. As with any hedging, you take whipsaw risk. You can refer to the hedge the hedge discussion we had some time back.

Maybe mo or riskarb if they read this can give more details.

 

[cdowis]

Let me put it short and sweet:

Shorting gamma to become delta neutral? You might want to check out career opportunities at McDonald's.

 

[Cache Landing]

Quote from cdowis:

Let me put it short and sweet:

Shorting gamma to become delta neutral? You might want to check out career opportunities at McDonald's.

LOL.

Two alterations to that statement;

1) I prefer Carl's Junior

2) Shorting gamma to be delta neutral isn't the bad part. Shorting gamma AFTER the position has gone against you is the bad part. If done correctly, a trader can make good money with iron condors.

His proposition was to sell a bear call AFTER the market dropped. This is the equivalent of buying high-selling low, regardless of the initial position.

 

[tplast]

Quote from ryank:

Stupid greek question of the week: I have a CTM put spread where the delta has gotten out of whack (trade has gone against me). If I sell a call spread to balance out the deltas, the gamma gets pretty big. I'll admit, I know just enough about gamma to be dangerous but am still trying to understand how this is going to affect my position. I go from being delta negative to slightly delta positive and then my gamma goes pretty negative. Damn greeks are getting me all confused on a Friday.

How can your delta be negative with a put credit spread? Did you mean calls or is it a debit spread?

I've been in the same boat since last week with a CTM call spread. What I did was to go long futures against it. As we moved up, I added some spreads and as we moved down I removed the futures one by one. The goal being keeping the average premium the same as the initial position. BUT, I did this because if I didn't have the position I would probably enter a similar one. The goal of the hedge was buying time for the trade to work. Otherwise, the best course of action is to take the loss.

 

[ryank]

Quote from Cache Landing:

LOL.

Two alterations to that statement;

1) I prefer Carl's Junior

2) Shorting gamma to be delta neutral isn't the bad part. Shorting gamma AFTER the position has gone against you is the bad part. If done correctly, a trader can make good money with iron condors.

His proposition was to sell a bear call AFTER the market dropped. This is the equivalent of buying high-selling low, regardless of the initial position.

Note I said it was the Stupid Greek Question of the Week and my preference would be for McDonalds, love those quarter pounders!

Intuitively I knew it wouldn't be a great idea, I'm going to sit tight for the time being. I started playing with the greeks and seeing if I could get the delta balanced out but the gamma started getting out there. Thinking about it now, if the out of whack deltas weren't a clue that my positions stinks right now, my "adjustment" to go delta neutral screwing up the gamma should have! If I'm going to do an iron condor I need to do that before I run into trouble not after.

 

[cdowis]

Of course, that is what I mean -- an adjustment.

For newbies:

Been studying the relationship between delta and gamma, and came up with an analogy which I find helpful:

Delta is speed and gamma (negative) is acceleration.

A low delta position, with high gamma is like a racehorse at the starting gate -- it's at standstill, but ready to blow out of the gate. High delta, low gamma is the racehorse running almost at full speed. As Tom Preston says, negative gamma "manufactures" bad deltas, and positive gamma makes good deltas.

Delta is the rate at which I am making or losing money. As the market moves a tick, for example, I am losing $1. Gamma tells me the rate at which I will be losing money after it moves several ticks -- now at $1, moves up and $1.10 per tic, now $1.20 per tic, etc.


Gamma and theta (time decay) are the two sides of the coin. You made money either thru gamma, with theta against you, or thru theta, with gamma (market movement) against you. There is another third side of the coin, volatility