This is what this board has become. A stalker gloating about a two-tick loss in ES which was traded as a hedge against the NDX fly. This fucking clown sends daily PMs. I am up 2.50 marked on the NDX fly. I couldn't short the NQ as it dropped 800 at the bell.
Hi Atticus, Could you offer a suggestion on when to exit a fly? If I put on an OTM call fly 50/55/60 on stock trading at 48 and 8 days later, stock goes to 53, would you close it out for profit x vs. holding on to it till expiration hoping for 3x ? Would it be simply a return on investment play where you close out position if you buy it at .50 and it doubles to $1 ? Would you sell something against the fly like selling a vertical against the call fly thereby locking in the pnl from 53 downward enabling you to weather a retrace back down which gives you staying power to wait out for the fly to decay at the sweet spot. Obviously by selling the vertical you open up more risk to the upside i.e. stock > 60. Any thoughts? Thanks in advance.
I'd solve for the gains to neutrality and then solve for the hedge ratio that would give up half of those gains if neutrality is reached. I run the math in realtime in a sheet for those OTM flies. You need to hedge small due to the possibility of flipping.
kinda embarrased to admit this but what exactly do you mean by gains to neutrality and hedge ratio. Do you mean using current marks and calculating the pnl if xyz setttels at the short strike and comparing this possible pnl vs current open pnl and finding a ratio where if it goes over you just book profits.i.e. if xyz pnl at short strike is $100 at exp and ur currently up $50 on open position you close it since it is 50% level (assuming you are shooting for 50%)
No, say your gains to neutrality (at the moment) are an additional $4,000. Shares are $2 away from neutrality. I would short 1,000 shares which would equal half the gains to the short strike. The risk is that the position flips modality and shares trade >$55 and you're losing on hedge and fly-deltas. This hedge is typically 70% of what it would take to get flat. So much depends on MTM gains. This is simply a QND assumption. I'll adjust the hedge based upon marks. You really can't go wrong with hedging half your deltas as these two will be somewhat comparable in impact.
I kinda understand the part about the hedge, If you are up some pnl since xyz advanced from 48 to 53 and u won a 50 55 60 fly, you would attempt to "monetize" some pnl gain by selling 1000 shares of xyz., I would probably sell a back month vertical to gain further time decay, albeit less agressive since it is back month. what i don't quite understand is gains to neutrality of $4000. What exactly does that mean? Thanks again.
You model the fly with an assumption of flat vol with shares at 55. Say the gain to neutrality is an additional $4k.
set all the legs of the fly with a the same implied vol number as the short strike.. the price of that flat fly against the price of the current market price is what he is talking.. hedging half your delta is slow playing your hedge params.. you have to take risk to make money.. you can't nuetralize your risk completely and expect to make very much money. so you essentially stay short gamma and get paid in theta... at least thats my understanding..