What to make of this strategy?

eudaemon · Jul 28, 2011

Interesting. Thanks!.

spindr0 · Jul 28, 2011

Quote from Gustaf:

May I ask, what would you consider "juicy"?

I think juicy is when the near month premium bumps up nicely due to pending news. Looking at a historical high IV UL isn't "juicy" to me since pemium is a reflection of IV so

eudaemon · Jul 28, 2011

Quote from atticus:

It's essentially a dirty short-dispersion trade. The dirtier you get the more alpha you generate.

When you say "dirty" you mean that it isn't a fully hedged trade, but that you are speculating (on volatility or skew or something or other, depending on market conditions) and taking/laying off risk mainly on discretion/outlook/etc. It isn't a stationary trade. Is this mostly correct?.

And the dirtier you get (the less hedged/more risk taken at certain opportunities) the more money you make.

Dolemite · Jul 28, 2011

Along the same lines as the original post, I found this book to be a pretty sound strategy if you are looking to sell premium and reduce risk:

Put Options : How to Use This Powerful Financial Tool for Profit & Protection

It was written by Jeff Cohen and it has been a while since I read it but I believe he actually actively trades the strategy. The key is hedging with index options to try and reduce exposure.

Eliot Hosewater · Jul 28, 2011

Quote from Gustaf:

What do you do when you get assigned which happens alot if you go one strike otm?

Br Gustaf [/B]

He says later that he takes the shares and sells covered calls.

atticus · Jul 28, 2011

Quote from eudaemon:

When you say "dirty" you mean that it isn't a fully hedged trade, but that you are speculating (on volatility or skew or something or other, depending on market conditions) and taking/laying off risk mainly on discretion/outlook/etc. It isn't a stationary trade. Is this mostly correct?.

And the dirtier you get (the less hedged/more risk taken at certain opportunities) the more money you make.

Yeah, on timing, vol-spread ("box" line on the dispersion), correlation, net greeks, etc.

atticus · Jul 28, 2011

Quote from Eliot Hosewater:

He says later that he takes the shares and sells covered calls.

And will convert to a synthetic short straddle on occasion. I go further OTM when doing so.

atticus · Jul 28, 2011

Quote from opt789:

First of all it is not a once in 80 year occurrence, not even close.
Second, the one that does you in is the one that hasnât happened before and cannot be predicted. I can think of a whole host of occurrences that if they happened to transpire would result in a 20% gap down and a triple digit VIX. The gap is what will hurt these type of traders, not a big move that happens over the course of a few days. If that were to happen margin requirements could be raised significantly and naked option writers would be done. These guys would lose everything and be shut down, that is simply a fact that is indisputable. The only question is if/when the big scary gap down happens.

I will sell LEAPS straddles on occasion into earnings or as play on vol+rates (short yield/curve). Barring that, there is never a good argument for shorting naked.

eudaemon · Jul 28, 2011

Quote from atticus:

there is never a good argument for shorting naked.

+1

Thks for tips on your OPM approach. Very discretionary, as I suspected. Nothing wrong with that, except that you must be at the helm.

Do you use IB for OPM as well as personal broker?. Negotiated a good deal in comms with them?

atticus · Jul 28, 2011

Quote from eudaemon:

+1

Thks for tips on your OPM approach. Very discretionary, as I suspected. Nothing wrong with that, except that you must be at the helm.

Do you use IB for OPM as well as personal broker?. Negotiated a good deal in comms with them?

Yes to IB. No to commissions. I pay the standard rate and unbundled on futures. I deal with a prime as well. Only family trades IB F&F.