Volatility skew

[Maverick74]

Quote from sle:

Could you elaborate on that one? I've never even heard these terms, does it somehow have to do with term structure vs the cross-strike vol differences, or am I off base?

Yes term structure. The horizontal skew is simply the difference between the vol surfaces over different durations while the vertical skew refers to different strikes over the same duration.

 

[sle]

Quote from Maverick74:

Yes term structure. The horizontal skew is simply the difference between the vol surfaces over different durations while the vertical skew refers to different strikes over the same duration.

Oh, I see. I never gotten used to the vertical vs horisontal vs diagonal terms, you never really hear them in the rates world.

 

[IV_Trader]

Quote from Maverick74:

Actually you need to do a better job with your homework. Shortseller was not attacked. We had a nice exchange and he even PMed me asking for help in reading the tape and said he was appreciative of the stuff I was posting. As for Don Bright, he and I go back years. I have nothing against Don and I did not attack. That was a joke about the BBB. Although I did want Don to comment on whether or not he was indeed teaching guys to step in front of size bids and offers. By the way, I can't tell you how many PM's I got on that tape reading thread thanking me for sharing all that info. It was nice of you to post it here.

IV Trader, I will tell you the same thing I told Short Seller, I have nothing against you personally, other then that asinine comment you made about not having a losing week in 4 years. My problem with you is that you simply don't know what you are talking about. And when you state it as fact on this forum, myself and many others are going to straighten it out. I know it's not my job to do that, just a habit I guess.

I tried to be cordial with you and explain to you why the IV numbers are not fake and you had no response to that. I tried to explain to you why trading the guts is almost never better then trading the strangle, you had no response to that either.

My simple suggestion to you is to study up on your synthetics. Trust me, you are not the only one on this board that needs to do that. So don't feel bad about it. Second, you need to study up on how time affects delta and volatility. And read up some on the difference between horizontal and vertical skews. Other then that, I wish you luck with your trading. I don't mind if you keep attacking me, it's all good. Just when you do so in the future, try to come at me with some material facts to back up your case. Thanks.

I actually respect you more now after reading this reply(take it for whatever it is). So its all about my statement about not having a losing week in 4 years , ha ? All your patronizing and insulting posts where about this , right ? You ego cannot take it or what ? Or its just because the fact that the person behind the statement have a poor English and don't know fancy industry terminology , is this fact make you so angry that you made choice to go for a personal attack on me like someone else? I thought so.

 

[nitro]

Quote from IV_Trader:

I am just wondering why do you assuming that second poster was you...I never mentioned your name .

Huh? I have no idea what you are referring to. Nevermind, I don't want to know.

... I met people like you all my life , arrogance , cocky , having a God syndrom (read your statement about you being #2). They all were cowards from inside and out and just like you , they didn't like to taste their own medicine.

Boooohoooohooo - you aren't going to start crying are you? I have met people like you on the internet all my life - you come across as knowing what you are talking about, but have never picked up a book in your life, and are proud of it no less!!!!!

You are not worthy of a minute of my time , there is absolutely NOTHING you personally can teach me in options or any other subject.

Teach you in options? I have no desire to put once ounce of knowledge in your puny brain. However, I do have an interest in debunking you. That has already been done several times over in this thread and you can now try to go an teach all you want on this site because this thread provides a reference to your incompetence - my work is done.

I do have a good news for you , Napoleon , help IS available.

Are you now claiming to be a Psychologist too along with being an options trader that never loses? Mr. Abagnale Jr., you are the one that needs help.

nitro

 

[IV_Trader]

Quote from nitro:

Huh? I have no idea what you are referring to. Nevermind, I don't want to know.


Boooohoooohooo - you aren't going to start crying are you? I have met people like you on the internet all my life - you come across as knowing what you are talking about, but have never picked up a book in your life.


Teach you in options? I have no desire to put once ounce of knowldge in your puny brain. However, I do have an interest in debunking you. That has already been done several times over in this thread and you can now try to go an teach all you want on this site because this thread provides a reference to your incompetence - my work is done.


Are you now claiming to be a Psychologist too? Mr. Abagnale Jr., you are the one that needs help.

nitro

don't use all your brain and memory cells on your posts , try to keep some for the basic , day by day staff like "table" , "lamp" , "trailer rent next week' and "margin calls"

 

[Maverick74]

Quote from IV_Trader:

I actually respect you more now after reading this reply(take it for whatever it is). So its all about my statement about not having a losing week in 4 years , ha ? All your patronizing and insulting posts where about this , right ? You ego cannot take it or what ? Or its just because the fact that the person behind the statement have a poor English and don't know fancy industry terminology , is this fact make you so angry that you made choice to go for a personal attack on me like someone else? I thought so.

No, I'm not upset about that comment, I only said that comment was asinine. Forget about all the other posts on this thread. Let me just ask you a very simple question as we get this thread back on topic.

Please show me one example, just one, where the guts are priced better then the strangle. Pick any stock out of the thousands that are out there. I just want to see one. You give me the stock and I'll price the markets for you. Fair enough?

 

[IV_Trader]

Quote from Maverick74:

No, I'm not upset about that comment, I only said that comment was asinine. Forget about all the other posts on this thread. Let me just ask you a very simple question as we get this thread back on topic.

Please show me one example, just one, where the guts are priced better then the strangle. Pick any stock out of the thousands that are out there. I just want to see one. You give me the stock and I'll price the markets for you. Fair enough?

Mav , how can you price it for me if you never asked me about why I took a trade in the first place ?
Anyway , here a simulation of one of the trades into report.
XYZ at 50.
EPS date = tomorrow
days to exp=3
Currents month IV = irrelevant
Next Month IV=60
Action:
Buy 1 ATM SEP straddle for 2.40
Sell 1 OCT 52.5 put for 5.50
Sell 1 OCT 47.5 call for 5.50

Expectations : 1)XYZ will move 10% on absolute bases.
2) Oct IV will collapse to low 40

Now , how can you make any analisys of this trade WITHOUT knowing rate of my accuracy in items 1 and 2 ?

 

[Maverick74]

Quote from IV_Trader:

Mav , how can you price it for me if you never asked me about why I took a trade in the first place ?
Anyway , here a simulation of one of the trades into report.
XYZ at 50.
EPS date = tomorrow
days to exp=3
Currents month IV = irrelevant
Next Month IV=60
Action:
Buy 1 ATM SEP straddle for 2.40
Sell 1 OCT 52.5 put for 5.50
Sell 1 OCT 47.5 call for 5.50

Expectations : 1)XYZ will move 10% on absolute bases.
2) Oct IV will collapse to low 40

Now , how can you make any analisys of this trade WITHOUT knowing rate of my accuracy in items 1 and 2 ?

OK, we are making progress here. Here is what I need to know. Tell me what the price of the Oct 47.50 put is and the Oct 52.5 call. That is all I need to know. BTW, this appears to be a hypothetical example, I actually need real prices from Friday's close if you could. Thank you.

 

[IV_Trader]

Quote from Maverick74:

OK, we are making progress here. Here is what I need to know. Tell me what the price of the Oct 47.50 put is and the Oct 52.5 call. That is all I need to know. BTW, this appears to be a hypothetical example, I actually need real prices from Friday's close if you could. Thank you.

2.50 each. It was the real trade , I rather not go into details like which co was it. All the above # are true.

 

[Maverick74]

Quote from IV_Trader:

2.50 each. It was the real trade , I rather not go into details like which co was it. All the above # are true.

I edited my last post:


OK, let me try this again, do you understand what I am saying when I am talking about synthetics. A synthetic option is combination of stock and option to replicate another option at the same strike. In other words, your oct 52.5 call should be the same price as the Oct 52.5 put plus long stock. Do you follow now? If it's not, there is a risk free arb there to be had.

So in your example, let's say we want to solve for the oct 52.5 call right? Here is how it would work.

Syn call=put + stock - strike

OK? So now let's solve for the syn call.

Syn call = 5.50 + 50 - 52.50 = 3.00

So the syn call is 3.00 while the gut was 2.50. You could have sold the Oct 52.5 call for 3.00, instead of the gut for 2.50. You threw away .50 in this example. If these prices you gave me are accurate. Do you follow?

Also, you threw away .50 on the other side. So you could have sold the strangle for a dollar more then you sold the guts. This is what I was talking about. The strangles are always going to be better priced then the guts 99% of the time.