Volatility skew

Quote from sle:

Ok, so you are trading the forward vol (not sure which way, so far). It's a pretty common strategy, for instance, I do something like this on the NFP dates - buy the event ATM and sell the wings a couple weeks after. You get the advantage of both the realized vol for the event and the selloff in implieds after the event has passed.

Btw, I was not sarcastic, I truly do believe that you might learn stuff from these discussions, esp. if we stop picking on you.
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OK , Sle. You are right , I came here to learn more , especially from members like you and Riskarb. I do similar to what you described above : buying the event ATM , but selling ITM (2.5 points deep for both calls and puts) next, non event month(if IV is inflated , of course). I find it to be the highest gain_per-combo.
Take care
 
Maverick / IV trader

Never mind that !

Hang onto your seat, SLE is about to explain how to structure a positive gamma AND positive theta At the same time ! This is hot stuff....

Hopefully !
 
Quote from Profitaker:

Maverick / IV trader

Never mind that !

Hang onto your seat, SLE is about to explain how to structure a positive gamma AND positive theta At the same time ! This is hot stuff....

Hopefully !
More...

That's not that hard to do. I did it all the time last year. It's simply a function of a steep smile.
 
Quote from Maverick74:

That's not that hard to do. I did it all the time last year. It's simply a function of a steep smile.
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Ok, the floor is yours....

Worked example would be great....
 
Quote from IV_Trader:

OK , Sle. You are right , I came here to learn more , especially from members like you and Riskarb. I do similar to what you described above : buying the event ATM , but selling ITM (2.5 points deep for both calls and puts) next, non event month(if IV is inflated , of course). I find it to be the highest gain_per-combo.
Take care
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Oy vey. You are selling the guts. Which in case you were not aware of is the same thing synthetically as selling the more liquid and better priced strangle. Obviously you have NOT read Natenburg. Better learn your synthetics before you start trading for real.
 
Quote from Maverick74:

Oy vey. You are selling the guts. Which in case you were not aware of is the same thing synthetically as selling the more liquid and better priced strangle. Obviously you have NOT read Natenburg. Better learn your synthetics before you start trading for real.
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Man , I did not responded to your last ten crappy posts , why can't you do the same ? If you currently working as a MM , please post the list of stocks that you cover , I will be sure to triple # of contracts next time I'll trade them. should be/will be easy money for me.
 
Quote from Profitaker:

Ok, the floor is yours....

Worked example would be great....
More...

All you have to do is look for real sharp skews going into earnings. I use to play them with ratio spreads, typically 1 x 3 spreads. Now keep in mind, this is one of the flaws in the BS model. The reason I say flaw is because your position is not going to behave the way your greeks say they will.

For example. Take a $100 stock. Say you buy one Oct 110 call and sell three Oct 115 calls calls for a .20 credit. This position could show that you are long gamma and long theta. The reason is because you are selling the 115 calls which are higher up the smile. That extra premium is what is giving you long theta. But in reality, it's an illusion. I say that because you will not be earning this theta every day like you think.

Just like in the previous example I gave with the 32.50 stock, those 115 calls are going to stay bid and as time goes by, the vol will actually INCREASE! This is expected. Therefore, that long theta you have is not really theta at all. You will only earn this juice after the earnings report. But on paper, your position will be long gamma and long theta. The long gamma is coming from the fact that you are long the 110 calls on a front month option. Since gamma tails off as you go further out of the money, the 115 calls are picking up very little gamma.

Anyway, I could go on forever about this. This is why you need to know your greeks forwards and backwards. Because many times, they are very misleading. You need to know how your options are priced and why they are priced that way. Just looking at your net greeks is not going to cut it. BTW, you aren't going to find a lot of these in this low vol environment. Usually on stocks like GOOG and CME you will find them now because of the sharp skews going into earnings.
 
Quote from IV_Trader:

Man , I did not responded to your last ten crappy posts , why can't you do the same ? If you currently working as a MM , please post the list of stocks that you cover , I will be sure to triple # of contracts next time I'll trade them. should be/will be easy money for me.
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I just find it funny that you obviously did not know that. There is no reason to ever trade the guts over the strangle unless the guts are priced better then their synthetic which 99.9% of the time they are not. I hate to say it bro, but that post of yours outed yourself. You should have left it alone after your first few posts. Ever heard of the saying, "it's better to be quiet and make everyone think you are a fool then to open your mouth and prove it"? :D
 
Maverick

I don't see how a ratio write could make you positive gamma AND positive Theta, regardless of any smile / skew.

sle ?

BTW, I know my greeks inside out, back to front, and upside down.
 
Quote from Profitaker:

Maverick

I don't see how a ratio write could make you positive gamma AND positive Theta, regardless of any smile / skew.

sle ?

BTW, I know my greeks inside out, back to front, and upside down.
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Think about it. Where is the gamma located in any option? Where is the skew? What does that skew represent? Think about the gamma curvature.
 
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