What strategies do you guys use?

[sle]

Quote from joneog:
The only alpha I see is the implied put written by the bankruptcy courts, the clearing system, and the 0 bound of net worth...

Well, you can't deny that there is a fair amount of risk premium built into the skew at certain times.

 

[sle]

Quote from Betapeg:

Thanks for the heads up. I have been pummeled before buying stock options and the pummeling didn't come from being wrong the market. It came from volatility plummeting. The VIX was in the high $20's and fell to the mean ~$20. I lost a quarter my total capital. I stopped right then and there. Trying out this futures options strategy has given me the impression that I have found another niche in regards to different strategies. Maybe I'll be proven wrong when I get hit by an unforeseen loss. But I reckon it's like that with any strategy you do so I am really not too deterred. Our investment group knows we're all in it together and know the risks involved in derivatives speculation.

That is the issue - if you do not pay attention to the level of volatility either direction (too high or too low), you are going to end up in pain. I, personally, have nothing against being short gamma or long gamma, but I am against doing thing "because it's a mechanical system". If you have a certain statistical way of verifying that the wings are rich or cheap right now, there is nothing bad about selling some wings and protecting yourself in some other way (e.g. buying vega or buying vol in some related instruments). Doing it mechanically and hoping to buy your options back once they double in price is a scary proposition.

 

[atticus]

Quote from sle:

Well, you can't deny that there is a fair amount of risk premium built into the skew at certain times.

Yeah, that extra penny in CL is worth another 500bps in vol. I personally don't see the point. The weekly decay on the straddle is better than 2x that BS 9 cent call. Trade some deltas in the straddle and 20 becomes 40 if you're correct, and that's trading one lots. I am not recommending a CL short straddle, but at least there is some decay.

 

[sle]

Quote from Rationalize:

Macro basket mean reversion.

could you expand a bit? sounds either very interesting or very vague

 

[Rationalize]

Quote from sle:

could you expand a bit? sounds either very interesting or very vague

Basketed pairs across equity indexes / interest rates / fx / commods & related broad ETFs.

 

[sle]

Quote from atticus:

Yeah, that extra penny in CL is worth another 500bps in vol. I personally don't see the point. The weekly decay on the straddle is better than 2x that BS 9 cent call. Trade some deltas in the straddle and 20 becomes 40 if you're correct, and that's trading one lots. I am not recommending a CL short straddle, but at least there is some decay.

Well, but would you rather trade a short straddle or a short variance swap which would include the skew?

 

[sle]

Quote from Rationalize:

Basketed pairs across equity indexes / interest rates / fx / commods & related broad ETFs.

Interesting indeed. How many trades do you do a month, in general and how quantitative is your selection criteria?

 

[Rationalize]

Quote from sle:

Interesting indeed. How many trades do you do a month, in general and how quantitative is your selection criteria?

Not enough & largely quantitative.

 

[Rationalize]

Quote from sle:

Well, but would you rather trade a short straddle or a short variance swap which would include the skew?

Would be hard to do the var swap at / near fair value, no?

Better to leg the straddle in the screen. Am I missing something?

 

[Martinghoul]

Quote from Rationalize:
Basketed pairs across equity indexes / interest rates / fx / commods & related broad ETFs.

That is interesting... How has that worked for you, on balance?