Vol-trading for beginners

[destriero]

Good strategy for a deep long going into the Tesla inclusion ... wondering where though you would want to sell vol going into frothy conditions as that’s typically a time to get long vol in equities

You buy straddles in high vol?

 

[deltaf0rce]

You buy straddles in high vol?

No. I’m obviously misunderstanding the post. You sold a straddle. But you called the stock frothy. Typically on a selloff in equities you get a run up in vol. but in this scenario vol is already high. So this scenario must be like one of those gamma plays like a Reddit stock. Am I right?

 

[destriero]

No. I’m obviously misunderstanding the post. You sold a straddle. But you called the stock frothy. Typically on a selloff in equities you get a run up in vol. but in this scenario vol is already high. So this scenario must be like one of those gamma plays like a Reddit stock. Am I right?

Yeah. A hypothetical growth stock, but most meme stocks have vols in the 00s.

 

[.sigma]

Dest, I’m trying to understand your comments on synthetics. Are you saying when using optionality we should stay away from using the synthetic equivalent delta1 commons?

 

[tsznecki]

You're short the synthetic straddle from $71 prem. You can be aggressive with your fills as you maintain a tax deferral on the trade. You're far less inclined to cover the shares now that your Jan terminal BE is $169 on shares. You're being paid to ride out any near-term vola and your terminal BE is 169 while you're neutral delta to the strike that you're short.

@destriero I'd like to hear your opinion on trade management below.

There's the greater philosophical question here:

Say XYZ at 205 has already ran up 100% and is frothy. However if one really truly believes in XYZ and think it could hit say 1000, why try to manage short term vol? I mean frothy tends to lead to frothier, until it doesn't.

And the trade management question here:

I almost always think cutting size aside from tax implications is the better option to neutralize deltas. Otherwise I'm trading 2 trades in one, Jan expiry and the longer term forecast. See above.

 

[destriero]

@destriero I'd like to hear your opinion on trade management below.

There's the greater philosophical question here:

Say XYZ at 205 has already ran up 100% and is frothy. However if one really truly believes in XYZ and think it could hit say 1000, why try to manage short term vol? I mean frothy tends to lead to frothier, until it doesn't.

And the trade management question here:

I almost always think cutting size aside from tax implications is the better option to neutralize deltas. Otherwise I'm trading 2 trades in one, Jan expiry and the longer term forecast. See above.

A 40 vol spot is not going to rally 5x over any time soon. "frothy" refers to the vol-figure. Say it's been a 30 vol for many months and is bid for earnings, product launch, etc.

I don't like to get flat in vol on a growth prospect. You bought the stock for a reason; otherwise why didn't you short the straddle initially?

 

[tonyf]

@destriero do you ever sell OTM naked puts on single names with the sole purpose of collecting a dividend yield (premium) irrespective of vol?

In other words, do you trade stagnation?

 

[destriero]

@destriero do you ever sell OTM naked puts on single names with the sole purpose of collecting a dividend yield (premium) irrespective of vol?

In other words, do you trade stagnation?

No. I've held stocks for years like CREE and AMD and overwritten with calls.

 

[tsznecki]

No. I've held stocks for years like CREE and AMD and overwritten with calls.

How do you deal with the scenarios where you overwrote the calls and the equity just kept going to/past the strike?

Do you usually eat the loss in the short calls? Or buy more stock?

Just as a side note, I've done covered calls on long term holds, but I'm extremely hesitant to ever overwrite because of what you mentioned above ^.

 

[destriero]

How do you deal with the scenarios where you overwrote the calls and the equity just kept going to/past the strike?

Do you usually eat the loss in the short calls? Or buy more stock?

Just as a side note, I've done covered calls on long term holds, but I'm extremely hesitant to ever overwrite because of what you mentioned above ^.

I stress the trade at neutrality at static and a vol-shift. I can't recall the last time an overwrite flipped D on me. It's happened of course.