what are some interesting/counterintuitive things you have learned trading options?

cdcaveman · Jan 31, 2013

Quote from thepolarbear:

I'm looking for some leads on interesting behavior you guys have experienced/witnessed over the years.

probably the most interesting thing i've learned .. is that everything i've learned about what newcomers do.. i end up doing.... its like someone saying don't eat that! haha nah.. but don't think your any different or special.. time takes time.....

start reading and don't stop....

OddTrader · Jan 31, 2013

agree with both posts.

justrading · Jan 31, 2013

Relying on the models 100% will get you killed.

Don't be the guy who drives into the river because the GPS said take a left and drive straight for a mile.

Fortunately I'm a born sceptic.

ktm · Jan 31, 2013

Quote from sle:

I was running an index options book at a large bank at the time and don't seem to recall anything that extreme, unless you were running really large or long-dated positions. What do you mean by "get $10 over fair value"? Were you long or short gamma? What prevented you to from covering with index options or SPY options? Why not, at the least, cover your delta (especially, if you are long gamma)?

I was restricted to Section 1256 qualified contracts, so that limited what I could deal in.

There were trades I could have made to partially hedge, but most involved taking futures positions. With the VIX north of 40 (eventually pushing 90 I think) and the kinds of overnight swings we were seeing - that was risky as well.

At some point you're looking at a 20% loss and you're thinking that given the massive drop - that we really can't go much further down and you try to circle the wagons, then it's 35% and things just get out of hand.

optionbull · Jan 31, 2013

Quote from ktm:

I was restricted to Section 1256 qualified contracts, so that limited what I could deal in.

There were trades I could have made to partially hedge, but most involved taking futures positions. With the VIX north of 40 (eventually pushing 90 I think) and the kinds of overnight swings we were seeing - that was risky as well.

At some point you're looking at a 20% loss and you're thinking that given the massive drop - that we really can't go much further down and you try to circle the wagons, then it's 35% and things just get out of hand.

Hi are you long only CTA ?

I recall a big drop in equities summer 2007 then rebound that day, the talking heads blamed "computers" but I and most knew it was the beginning of instability becasue of all the leverage, just had to look around I knew people that owned three houses that should own one,,,,, then the leverage in the "markets" ended up dwarfing that..... who knew, but the sudden drop was not normal and was warning for long only people collecting checks for "fee" money managment

justrading · Jan 31, 2013

Quote from optionbull:

Hi are you long only CTA ?

I recall a big drop in equities summer 2007 then rebound that day, the talking heads blamed "computers" but I and most knew it was the beginning of instability becasue of all the leverage, just had to look around I knew people that owned three houses that should own one,,,,, then the leverage in the "markets" ended up dwarfing that..... who knew, but the sudden drop was not normal and was warning for long only people collecting checks for "fee" money managment

I think you are very much on the right track. Look around you for signs as to what you should do. That will point you to the money.

newwurldmn · Jan 31, 2013

Quote from ktm:

I was restricted to Section 1256 qualified contracts, so that limited what I could deal in.

There were trades I could have made to partially hedge, but most involved taking futures positions. With the VIX north of 40 (eventually pushing 90 I think) and the kinds of overnight swings we were seeing - that was risky as well.

At some point you're looking at a 20% loss and you're thinking that given the massive drop - that we really can't go much further down and you try to circle the wagons, then it's 35% and things just get out of hand.

I think you are thinking of 2008. If you were short vol it was hard to find sellers. And at that time all those third order effects you didn't care about before mattered.

I got stuck with some var swaps and it didn't matter how much listed vol I could source, it wasn't enough/ or it was too much. Eventually I was praying that the caps come into effect and I would be just long listed vol.

ktm · Jan 31, 2013

Quote from optionbull:

Hi are you long only CTA ?

I recall a big drop in equities summer 2007 then rebound that day, the talking heads blamed "computers" but I and most knew it was the beginning of instability becasue of all the leverage, just had to look around I knew people that owned three houses that should own one,,,,, then the leverage in the "markets" ended up dwarfing that..... who knew, but the sudden drop was not normal and was warning for long only people collecting checks for "fee" money managment

I was a CPO and not "long only".

If your wish is for my inferiority to confirm your narrative, then that's what you'll make of it

The OP asked a question about unexpected things we had seen in the options arena, and I responded. Hopefully I won't - once again - regret sharing and opening up to this forum in an effort to help a fellow trader.

sle · Jan 31, 2013

Quote from newwurldmn:

I think you are thinking of 2008. If you were short vol it was hard to find sellers. And at that time all those third order effects you didn't care about before mattered.

I got stuck with some var swaps and it didn't matter how much listed vol I could source, it wasn't enough/ or it was too much. Eventually I was praying that the caps come into effect and I would be just long listed vol.

Yes, 08 was a real pigfuck for some people and a real happy time for other. All sort of convexity effects that nobody except for me cared about suddenly became interesting - e.g. that variance swap positions are convex in vega (who knew!

), that vol swaps and variance swaps are not exactly the same thing, that dGamma/dSpot and dVega/dSpot are second order but do matter etc. Some people have been accumulating these risks for years and cashed in or checked out.

zdreg · Jan 31, 2013

Quote from sle:

Yes, 08 was a real pigfuck for some people and a real happy time for other. All sort of convexity effects that nobody except for me cared about suddenly became interesting - e.g. that variance swap positions are convex in vega (who knew!), that vol swaps and variance swaps are not exactly the same thing, that dGamma/dSpot and dVega/dSpot are second order but do matter etc. Some people have been accumulating these risks for years and cashed in or checked out.

since you don't mention a Gspot there is no doubt u are referring to options.