Vol-trading for beginners

[.sigma]

Vol line for APR $100 strike is the IV for both call/put?

 

[tsznecki]

2 questions @destriero :

7) You're trading vol locally and be a net-buyer of wings. Long or short vol (LOCALLY) you have to be long convexity at the wings. It's always in your favor if you're short gamma locally. a. you're going to be protected on the downside as markets crash (strips rally) and b. protected on the upside by contamination/stickiness on up/out calls, c.long dgamma/dvol. By long wings I am not referring to fly-legs. I am referring to taking a portion of capital (sunk cost) and devoting it to cheap wing protection. Singles (strangles) are preferred, but condors are acceptable. If you're long more than or short more than 100D you can hedge one side. I've numbered these points to reference later.

Help me/us understand the bolded above.

Say you short the ATM March19'21 AMZN straddle, AMZN at Fri close is 3275. If we are to understand you correctly, you are saying go buy AMZN March19'21 4000 calls and 2500 puts or something similar? Instead of buying 3875 calls and 2775 puts and flying it off.

What's the difference between being long wings and flying it off? At those strikes above, cost of protection is about the same. Are you saying simply have long crash/meltup protection?

What if we say flying it off is good enough, I don't need up/down long gamma?

The vol-line on the 100-strike for APR is 33-mid. Someone is bullish and leaning on the puts, outright. You're an OTC MMer in vol and they come to you with an order of 5K up and you know the guy isn't a put buyer so you adjust your market to 30x32 and he hits your bid. You're long 5K puts at 30-line and you short the calls at 32.5 and buy 500k shares. You're in the conversion at a vol-edge of 2.5 handles. Your risk is opportunity at this point (rho--a massive change in rates).

A lot of us are executing through IB. Do we need to be building our own pricing model to find out vol lines or are the numbers thru IB/XYZ retail platform sufficient/real?

 

[.sigma]

Is this the contamination Desty been conversing about?

 

[destriero]

Vol line for APR $100 strike is the IV for both call/put?

ofc. The vol was 33 mid. Buy side guy is known. Sell side guy makes market and the result is a conversion for the MMer. Even buy side guy knows where the vol-line is. The difference is the MMer knows what impact the transaction will have on listed vol.

 

[destriero]

2 questions @destriero :



Help me/us understand the bolded above.

Say you short the ATM March19'21 AMZN straddle, AMZN at Fri close is 3275. If we are to understand you correctly, you are saying go buy AMZN March19'21 4000 calls and 2500 puts or something similar? Instead of buying 3875 calls and 2775 puts and flying it off.

What's the difference between being long wings and flying it off? At those strikes above, cost of protection is about the same. Are you saying simply have long crash/meltup protection?

What if we say flying it off is good enough, I don't need up/down long gamma?



A lot of us are executing through IB. Do we need to be building our own pricing model to find out vol lines or are the numbers thru IB/XYZ retail platform sufficient/real?

I am not talking about structuring flies. I am talking about contrasting your local vol-book (trading ATM) with hedging the portfolio.

 

[destriero]

View attachment 251882

Is this the contamination Desty been conversing about?

ofc, but I haven't read Taleb. He's so awkward.

The intent was to (pardon) dumb everything down and use practical scenarios. We're like a year away from that topic. Like why interpolate OTC penny strikes inside 1SD?

I don't think this thread will get deeply into sticky delta/SS. It's good to understand the mechanics of smile, but for most it will be noise, especially as it relates to trading SN (single name) vol.

 

[destriero]

2


A lot of us are executing through IB. Do we need to be building our own pricing model to find out vol lines or are the numbers thru IB/XYZ retail platform sufficient/real?

As long as the vols are priced off the mid of NBBO.

 

[InAllHonesty]

Nice to see everyone talking Japanese in here. Konichiwa.

Directional trader signing in for hopefully some non directional and hedging tips. Offering my early thanks, it's awesome when the internet isn't shit.

 

[caroy]

Nice to see everyone talking Japanese in here. Konichiwa.

Directional trader signing in for hopefully some non directional and hedging tips. Offering my early thanks, it's awesome when the internet isn't shit.

arigato mr. roboto

 

[ironchef]

The bolded above is where it becomes a serious game of cat 'n mouse I reckon' How do you KNOW the guy on the other end is not a buyer of puts? It's as if you have to have the mind of a pit trader, to KNOW the guy on the other end of a potential trade. How can you have a feel for that in an all-electronic market?

A retail's opinion:

1. On high volume like SPY you really don't know but with a bid/ask spread of 1-2 pennies, you don't care.

2. On thinly like GILD with bid/ask a mile wide, ~100% of the time it is MM

3. Unless either the bid/ask has sizes like 1/xxxx. The 1 lot is probably retail trying to buy.

4. If your mid got hit immediately, perhaps another retail took the opposite position at the same time using the same mid.

So on my GILD trades, I look at size before I enter my limit.