What strategies do you guys use?

[opt789]

Quote from sle:

The question you want to answer is - "am i simply underwriting tail events or extracting some sort of excess value?"

Obviously we already know the answer to that question.
The very few who can extract excess value would not post what they do, here or anywhere else.

Quote from sle:

Well, best way of describing it would be "distributional arbitrage" so it combines both direction and volatility.

To be honest, my issue with these guys is not that these strategies are totally wrong, I do believe that there is alpha in selling wings. It's that they
(a) frequently do it as a mechanical system instead of actually evaluating the alpha in the trade
(b) frequently think that they have invented something that nobody had thought of before and thus they are golden geniuses
(c) do not pay much attention to risks and discount rare events
(d) and, most importantly, rather quickly try to become "asset managers" or "teaching gurus"
The combination of (b) and (d) is definitely the worst.

Couldn’t agree more, I would just emphasis that these people always, always over leverage and set their sites on annualized returns that no one in the history of the market has ever achieved in the long run. Additionally they almost never have the many years of trading experience necessary to understand how to handle things like the inevitable gap move, fast markets, and the deer in the headlights mentality of hoping it will come back. Hopefully their investors know enough to sue the “investment manager” when the blowup happens.

 

[joneog]

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

Fair enough. That far out of the money just seems like more trouble than it's worth imo.

Quote from sle:

The question you want to answer is - "am i simply underwriting tail events or extracting some sort of excess value?"

+1

 

[Betapeg]

Quote from sle:

Well, best way of describing it would be "distributional arbitrage" so it combines both direction and volatility.

To be honest, my issue with these guys is not that these strategies are totally wrong, I do believe that there is alpha in selling wings. It's that they
(a) frequently do it as a mechanical system instead of actually evaluating the alpha in the trade
(b) frequently think that they have invented something that nobody had thought of before and thus they are golden geniuses
(c) do not pay much attention to risks and discount rare events
(d) and, most importantly, rather quickly try to become "asset managers" or "teaching gurus"
The combination of (b) and (d) is definitely the worst.

Utilizing the strategy I have detailed here, what would you employ as a risk management strategy? I see the double premium mental stop as a rule of thumb which could be far surpassed as you guys said. Black swan events are a given. How would you protect yourself?

 

[eudaemon]

Quote from Betapeg:

Black swan events are a given. How would you protect yourself?

There are 2 tails at all times. Bet more on the one that won't happen, and no bet on the one that will happen?.

 

[Martinghoul]

Quote from Betapeg:
Utilizing the strategy I have detailed here, what would you employ as a risk management strategy? I see the double premium mental stop as a rule of thumb which could be far surpassed as you guys said. Black swan events are a given. How would you protect yourself?

AFAIK, only two types of "protection" exist:
a) Don't do it
b) Have a very large amount of cash handy

 

[eudaemon]

Quote from Martinghoul:

AFAIK, only two types of "protection" exist:
a) Don't do it
b) Have a very large amount of cash handy

c) Raise a huge amount of OPM. Make the bets, collect the management fees, and have an alternate passport with alternate ID ready with airline ticket to a new life when the inevitable occurs.

 

[Wayne Gibbous]

Quote from eudaemon:

c) Raise a huge amount of OPM. Make the bets, collect the management fees, and have an alternate passport with alternate ID ready with airline ticket to a new life when the inevitable occurs.

An "O'Hare Option?"

 

[sle]

Quote from ForexForex:

I agree ...... but then you have exposure to vertical and horizontal risk while the omega angle remains below 7, not good in todays market. 5 years ago it was OK, but not now.

atticus your thoughts on this?

I have no idea what you mean - is omega angle some measure of the skew? What is horisontal and vertical risk? First time in 15 years i hear this terminology...

 

[nfamousyoungest]

Quote from Betapeg:

How would you protect yourself?

Dude, you are selling the protection. "hi, this is allstate, I need a quote on insurance..."

You'll have to sell closer to the money and buy an even further wing, getting marginal premium.

 

[ForexForex]

Quote from sle:

I have no idea what you mean - is omega angle some measure of the skew? What is horisontal and vertical risk? First time in 15 years i hear this terminology...

I'm just making things up ..... I'm trying to get atticus to fall for some troll bait, looks like he wont bite.