We all make mistakes, but yeah, he was trying to impress the crowd with size and it bit him in the ass. Another MMer I know was desperate to buy vol and went debit on long atm straddles. Missed locking delta by a few ticks on a bunch of spot-hedges, and yes, spot was pinned to strike on expiration. dmo:
I knew that I was going to regret that post, but a few comments. I'll readily acknowledge that atticus has a superior fund of knowledge here; most of the rest of the posters do as well. I don't mind admitting that I'm not at your level, while I don't admit to being an idiot on the topic either. I almost wanted to put the adjective 'feel' in on that statement but that really smacks of gambling. That's not the purpose of that position, so I didn't put it in, although it is somewhat still implied. (and shame on me for that.) The point about no professional doing that is well taken, but I'm trading a retail account. If I had a MM's book, it would be traded differently. I wouldn't try to trade my account in the manner which either a MM or larger institutional desk does. I can't execute as rapidly, or at similar commission costs, and may not be able to write options as easily without tying up capital, so I don't. So, from a retail perspective, I don't think that buying the wings is insane. Particularly if you have a catalyst. And in fairness to myself, I did disclose that I probably, at best, have only broken even on that strategy. Although I've nailed it at times so well I've been dancing with my wife too. Both sides of the trade. While I don't wish to hijack or kill the thread, to the one poster; if you would like to propose a better strategy for a retail account than buying the wings besides a call or put spread without tying up too much trading capital, please educate me. I'm all ears. I guess I have to go read Taleb now to catch up to y'all.
Doc, I think xflat is simply stating that wings make for good hedges; trades made to define risk via flying-off unbounded risks. Wings aren't terribly sensitive to gamma, delta or vega. They do have convexity to gamma, which makes them good hedges, and is why long flies don't disintegrate when spot trades to the wing strikes.
The point is not to buy strangles, or call/put spreads, or calendar spreads. The point is to find an edge. You have to have a reason to believe there's a better-than-random probability of something in particular happening. Once you determine that, you look for a way to play that with options without paying more-than-random-probability prices. All the "strategies" such as vertical spreads, strangles, etc. are just possible ways to formulate an actual play from your opinion. None of them should be seen as having particular value in and of themselves. A lot of people here seem to have this idea that if it's Monday, it's time to do xyz strategy. Personally, I think the most important attribute in a good trader is the patience to wait until a juicy play presents itself, and the discipline to do nothing until then.
I'm doing some CC's and cash secured puts in our IRA and depending on how and when traded they are doing OK, however took a hit on them in Jan/Feb...since Mar making it up
Imo one of the most important things a trader can do is to draw/write a chart of the food chain in trading a given instrument, and where you stand on it. Where does your prey come from? Remember that cartoon with bigger fish consecutively each about to eat each other from the back? Who are you prey to? Once you understand that, the strategies fall into place, if they even exist at the retail level where the expectation of profit is more than 50/50. nitro
Well I used to sell both puts and calls. For the most part I sold puts on stocks I thought might take off and I was kicking myself in the ass later for only making a couple hundred dollars on each short put when I could have made thousands on the stock or long calls. I sold calls on stocks I thought were going to tank and was kicking myself in the ass later for only making a couple hundred dollars on each short call when I could have made thousands on shorting the stock or long puts. So.... draw your own conclusions. But if you have identified a non volatile stock and am fairly confident of its range, selling otm strangles might give you steady income.
The biggest mistake I used to make was thinking that if I wasn't actively trading daily, I wasn't working. I made alot of bad trades because I thought I had to figure out where my favorite stocks and ETF's were headed that day and trade them.