working with option traders, risk, and option selection

Ironplates

Ironplates

I would like to better understand what to look for in a trader for options? how much capital is a reasonable amount to give them?

I would like to know from other traders here, if there are behaviors, mindset or otherwise to be aware of in making a decision about keeping the trader in the group.

The obvious factor is, are they making money?

A mindset that I like is: to make the most of opportunity and take it as long as the risk of the operation can handle it.

What is the best way to measure the amount of risk to take to trade in terms of number of contracts and stop limit size on a short term [inside three months] and long term [LEAPS]

What are effective strategies to use for non directional markets?

What are effective strategies to use for directional markets?

What are good ways to manage the trading opportunities?

On names like [ie WAB] is there a way to determine which Calls to buy when facing the challenge of wide bid ask relative delta.

Is there a way to estimate at what price levels delta would change or this in the Gamma?
 
Your questions are why 90% of mkt participants don't trade convexity. There is no substitute for immersion. You take a guy who's fresh with an adv degree in topology; l-alg, etc. and they will summarily blow-out. The is a cognitive barrier to entry, but it's dialectical. You can know Hunanese and not know wtf a Mandarin is talking about. The complexity is subtle and usually related to timing and structuring. The rest is cake, but the cake is 10% of the heuristic.

It's all undergrad maths (at worst). 20Y ago it was all about the width of NBBO (or single exchange); in such that trading was all vol-edge for the MM; the spread relating to fairval. Now vol-edge is essentially gone and traders earn primarily on convexity and surface.

The driver of option profitability (distinct from those trading a passive overlay of delta1 products) is on surface (shorting vol into rallies/going long vol into declines) and trading in variance (peakedness vs. discrete vola). This excludes the inter-exchange/product MMer who's trading a path-dependent model (dependent) of buying vol at n and hedging discretely to achieve swap proceeds of receiving realized at N+x.

So basically it comes down to a discretionary overlay of guys taking punts on long gamma, guys trading convexity as share and index proxies, and passive short gamma "always in" types who are always short var.
 
Quote from Ironplates:



Is there a way to estimate at what price levels delta would change or this in the Gamma?
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Delta is contaminated by vola and surface. There are lots of orders/moments, but those beyond third-order are mostly relevant to knockouts (vanilla and touch mkts).
 
Quote from Ironplates:

I would like to know from other traders here, if there are behaviors, mindset or otherwise to be aware of in making a decision about keeping the trader in the group.

The obvious factor is, are they making money?
More...


If they are making money then their behavior, mindset or otherwise would be a moot point - You would keep that trader.
If they are loosing money then their behavior, mindset or otherwise would be a moot point - You would let that trader go.


Quote from Ironplates:

On names like [ie WAB] is there a way to determine which Calls to buy when facing the challenge of wide bid ask relative delta.
More...


What is your price level for WAB and when?
 
Quote from Ironplates:

73.1 in a couple days ago
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So you are into the “Should have. Would have. Could have" type of trading. In that case TSLA calls would have done better than WAB calls.
 
WAB is the result of my screening process.

the current obstacle for me is a policy for selecting the best option for this kind of behavior in the mid cap space.

purchased the APR 75 with .44 Delta.

i think the APR 70 or 65 may have been more responsive.

although the .44 delta helped absorb some of that vol the last couple days.
 
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