$152.46 ROKU 190927P141 -$3.40 $75.00 $141.79 TLT 191004P138.5 -$0.82 $28.00 $136.91 DIS 190927P133 -$0.77 $33.00 $92.39 SBUX 190927P89 -$0.55 $45.00 A pleasant way to start the day; $181 in the first few minutes, all trades in at 18-45%. $149.40 ROKU 190927P142 $4.00 $139.90 TLT 191004P137.5 $1.00 Good day return-wise, pretty craptastic otherwise. Feeling exhausted for some reason... could be the heat, which I've become unused to after a summer in Colorado. Even more probably, the sudden change from a regime of relatively heavy exercise (a 4+ mile hike every morning plus stalking the wily mushrooms for hours, up and down the mountains at 11,000'+ in the evenings) to this enforced inactivity - stepping outside is like swimming in hot molasses and breathing glue. Ugh. I'm going to curl up and die when I get to FL. I'm going to have to figure something out damn quick. Feels like my body is falling apart after less than a week of this shit. I'm addicted to exercise! Sounds like a good thing... until you can't do it. Maybe push-ups and such inside. Not my fave, but if it gets me past feeling like a burned-out junkie, that'll be a big positive.
$151.05 ROKU 190927P142 -$3.20 $80.00 Nice; wasn't expecting this to come in quite so soon. So it's not just the lack of exercise; turns out I've picked up a nasty cold somewhere (I'm guessing it was that sweet, friendly park ranger who checked us in - and sneezed on me while doing the paperwork. Argh.) Feels like my skin and every bone in my body is aching, and my brain is wrapped in cotton wool. Not helpful while trying to learn and understand things, dammit! I've spent quite a bit of today looking for something decent to trade; for the wheel trade, I need a high IV, preferably in an index or some other good-quality underlying, and nothing stood out. I really don't feeling like a one-trick pony, but I guess that's what I am at the moment. Well, maybe two or three tricks - hey, look at me, I can do ICs and strangles and straddles, too! - but those are all an expression of a single market view with different degrees of risk/buying power aspects, so. I really need to learn calendars and flys. I mean, I know the mechanics of putting them on - but I don't know what to look for as entry conditions except in the most general sense. The few I've done so far have been inconclusive: the calendars have all just hung in there doing nothing until they came in for a scratch or a tiny little profit, and the flys (BWBs, for the most part) did these weird, unexpected [1] moves in P&L that, although successful to some degree, taught me nothing useful. I don't know whether that's an artefact of me not having done enough of them yet, or whether just doing them without understanding is going to give me any positive increment of understanding. Fuck it, I'm going to try brute-forcing it. Ten flys coming up; I'll either lose some money, learn something useful, or at least know that brute-forcing doesn't work. Helpless inaction is the worst goddamn "approach" of all. [1] Which means that I have some wrong concepts about them - but trying to visualize the delta, gamma, and vega for one seems beyond me at the moment, and I've damn near given up on writing or finding software that can do what I want here.
$141.90 GLD 191018P139 -$0.96 $24.00 Feeling a bit wonky about this one - not sure if I should have taken it off... probably shouldn't be trading with this damn cold messing my head up. Like trying to think through strawberry jelly. $289.22 COST 191004P275 $2.35 $206.11 STZ 191004P192.5 $2.00 $290.90 COST 191004P275 -$1.99 $36.00 OK, 15.3% in under 2 hours is reasonable. $150.63 ROKU 191018P140 $5.40 Well, the market - unlike a hungry trout - did not rise to my SPY fly. I fiddled with one in ADBE, too, but just couldn't work it out; too many confounding factors (earnings AMC today, plus - what the hell? - a comparatively low IV. Pretty satisfied with our pricing projections, are we?) More exploratory stuff that didn't work (as in "didn't fill", not as in "trade didn't pay off"): fiddling with selling puts in my IRA. I started with a 30D strike as I usually would, and then thought "so... since I actually want to either hold SPY in this account, what would be the problem with selling an ATM put?" If it rallies, I win - nice premium there! - and if it drops past my B/E, then I'm still fine; I own one of the best assets in the world. Not using leverage, so no concerns with BPR or whatever; it's cash-covered. Like I said, it didn't fill at the price I offered - but I'll put it up again tomorrow, assuming the IV doesn't drop in the toilet. Am I missing something?
138.24 ROKU eq50 $6,912.00 $139.66 ROKU eq50 -$6,983.00 -$71.00 Unsuccessful but somewhat educational hedging experiment. A bit steep for that little chunk of tuition. $80.54 TMUS 190927P79 $0.54 $140.50 TLT 191004P137.5 -$0.80 $20.00 Out of TLT for 20%. Quite a bit less than I "should" have held it for, but my thesis on bonds has changed, so I'm grabbing and running. So... I've gone off the reservation I've been on - selling puts on indexes - and am getting whacked in the balls for it. The idea of focusing on "stocks I want to own" is the one I started with; I even put in a bunch of time into learning fundamental research (can't say I ever got good at it.) Then, along the way, I ran into the idea of just doing indexes - ya know, those things that have essentially zero chance of going all the way down? - and have mostly stuck to those. That's worked fine. However, I recently started looking at the idea of doing quality stocks again. I mean... ya know, awesome volatility, great premium, maybe hold'em and earn some delicious dividend and maybe even some cap appreciation?... so I sold some ROKU. The day before FB and CMCSA announced some ROKU-killer news (competitive and free equivalents.) $23 drop in one day, which punched through my distance from ATM and the premium like they weren't even there, and all the way down to a (notional) loss of over $1k. Mr. Market... I'd have gotten the message if it was, like, a couple of hundred. You didn't have to shout... To add insult to injury, I did the classic amateur thing (I now realize) with my first-ever hedge - bought high and sold low. Not like I had anybody to give me a clue about it; everyone I've asked seems curiously resistant to giving me the straight story on hedging, and I can't seem to find a simple explanation anywhere. Maybe I'm just drowning in information, and can't find it where I'm looking. Fuck me with twelve miles of rusty concertina with angry coyotes stuck in it, but today was NOT a good day. I'm not even talking about the money; that's going to be whatever it is, and I'll figure out what the hell to do with ROKU at some point before I lose the entire 13k+ of it. But... my ignorance about what to do in this simple-seeming scenario is just driving me bugfuck. Dammit, it seems like hedging just shouldn't be that complicated - I know the mechanics, I'm just missing some clues... but they seem to be the important ones, and not being able to see them ahead of time is - very different from everything else in my life, where I generally have a pretty good grip on figuring things out. This makes me feel stupid, and I would really really REALLY like to get past that.
Imo, a perfect hedge is essentially an exact replication of the option using the underlying at that moment in time. Hedging in the traditional sense is used to isolate the spread between realized vol and implied vol. So you can profit from a favorable vol thesis with less interference from directional PnL. In practice, continuous hedging is not possible, and to solve for the right hedge amount you need vol, which is unknown. So we can set frequency and estimated vol that are “good enough” for our purposes. Hedging does not repair losing trades or turn losses into gains. If you are short an option and vol rises, you just had a -EV event. The particular path within the spectrum of variance that was realized can still produce positive PnL, so this obfuscation causes a lot of problems for people in the long run. I.e. if you sell a 5 delta put, spot realizes greater vol than you sold but doesn’t make it all the way to the strike before expiry: terminal PnL is positive, but that scenario repeated a large number of times with different price paths will result in net losses. And you’ve also got to be asking yourself what is fair compensation for having extremely high covariance with the worst systemic shocks. Marginally positive PnL isn’t good enough. Regardless, things might be clearer if you define your thesis more precisely. If you want to be long a stock, trade the underlying. If you think for a specific time period, options are mis-pricing future realized vol, then trade the options. Selling puts becaue IV is high and you wouldn’t mind owning spot is too conflated to get good feedback from the market and actually learn from the outcomes.
That's actually a piece that I've been poking at and trying to understand. If I start with a high-IV underlying and delta-hedge my option (say, a short put) right from the start, then theoretically, theta and vol collapse should just work in my favor - and if I exit the trade before gamma goes into meaningful territory, then... that sounds suspiciously like a winning scenario. But that's where I'm stuck: without a way to model it, I don't know where the problems lie. And just throwing money at the market without having a better clue than that has not proven particularly useful ("P&L goes up, P&L goes down; you can't explain that!") The piece I'm missing here is pricing things in vol. I've seen a few people mention it here, and it seems like it would be super-useful for normalizing - but I can't find any resources on how to do it. Any suggestions? (I should mention that my last practical experience with statistics goes back to the Paleozoic Era or so. Don't laugh; hitching up those trilobites for the ride to class was a total bitch. Even then, I wasn't as lucky as NN Taleb, who realized that it was important and exciting - you could make money with it! - so I basically slogged through it then, and forgot it immediately after. It's on the schedule, but... dammit, the practical end of doing options is already filling this old brain to capacity for the moment. Math, algebra, fair amount of calculus, even the practical/implementation aspects of data science - those, I've got. Theoretical underpinnings, all gone. ) ...Thanks. Seriously, I needed to read that. There seems to have been a "wish and hope" fantasy running around in my head, even though I pretty much knew better. Can you explain why there's a greater negative expectancy for these? I'd love to understand it. Reason I'm asking: I have a friend who puts on 0-day low-delta ICs all the time, and he's generally pretty successful with them (he sets stops inside the shorts that are about equal to max profit, and adjusts them as expiration moves closer.) I've been trying to figure out what the flaw is in this, and nothing beyond probability of touch - which doesn't seem to come into play very often in his setups - comes to mind. I don't understand why there's greater correlation between systemic shock/risk and low-delta options. It's a product, right?... again, I'm about at the limit of my scope, but that's what I recall. Well... then I have a really serious fundamental problem. I don't have a directional thesis on the movement of anything - except maybe general positive drift in SPX and related. Everything I've seen just keeps reinforcing this: chart-reading/TA, FA, whatever kind of voodoo I've heard of, none of them seem to produce a meaningful correlation to realized movement. IOW, nobody seems to have the slightest fucking clue about what's going to move where - and the "gurus" who sell their magic potions seem the least clued in. The only two approaches that seem to work are: 1) Brute force via risk management: make 50/50 bets and set your stops and limits at 1:3 or more, and over time, you'll get lucky. Maybe get some improvement from playing the limits, like "price generally doesn't move more than 2SD in a day". 2) Have a thesis on vol, which seems to have some poorly-explored corners - although there's a bunch of quant shops banging away on that. Since vol is mean-reverting, and does generally move in a more-or-less defined range during a more-or-less defined percentage of the time, this seems more promising to me (whereas sticking darts in a red-and-green magical chart does not.) If I'm misconstruing something, please enlighten me. Otherwise, I don't have the slightest clue of where to start getting a clue.
I'm not sure I can go into every direction you're exploring at the moment but I'll try to respond to the general thrust. Regardless if IV is high or low, the avg PnL on your replication of the option will be inverse to the avg PnL of the option itself, which leaves avg profit as the difference between the option priced in implied vol and the replication in spot which yields realized vol. If you buy vol at 10% implied, and replicate the profile with shares in spot that realizes 15% vol, on avg you collect the spread equal to the vega exposure of the option. Imperfect hedging and the path price takes when it realizes the vol create variance on this PnL. So we can only talk about average outcomes. This is the attempt to isolate vol. If you short options in front of a vol collapse that's generally a good preposition, yes. If you find a way to model or predict that at better than random, the system will have positive expectancy. Re: pricing in vol, this is the variable input of the BSM model. Spot, Strike, DTE, Int and Div are all known figures. This is why people refer to options being priced in vol. Realizing more vol than the option you sold implied is -EV because you were paid less value for something that it was really worth. Ultra low delta having high covariance with systemic shock is because they will only pick up exposure in the worst tail events. You'll be passing through the apex of your short gamma exposure when it's the worst time to be doing so. Vol is likely to be extremely high and liquidity very thin. Short term directional prediction is a hard game, agree that almost nobody can do it. If you're confident in drift then trade that over longer time-frames. While you're doing that search for other correlations/signals meaningful enough to trade. Vol has certain characteristics like mean-reversion and auto-correlation that makes it appealing to trade for some. Other markets have other characteristics / risk-factors that yield returns as well. Plenty of ways to skin a cat.
OK... first thing on this kind of hedging I've heard that made solid sense. Woohoo! I understand the portfolio insurance aspect of it (mind you, like many other things about options, I haven't yet done it - but the principle is a basic one.) I just was not getting the point of this. Thank you! Beautiful. I know I can model a single dependent variable and play all kinds of games with ML, etc. - hell, I've taught that stuff. If I can isolate vol... I'm good. I'm sure I'll run up against a bunch of brick walls in the future, but this is super, super helpful. That was my nefarious plan from the start. I'm pretty much certain that there are inefficiencies in any system with this many moving parts... don't want to pretend that I know more than I do, but just from what I've seen so far, I think I can learn to do this well. Got it. OK, I'll have to rig a little BSM calculator for myself and get used to using it; easy enough. Man, you're knocking them down one after another. This also kinda-sideways explains the success of my friend's 0-day ICs - minimal time exposure to tail events. OK, I can see where it increases his overall risk to significantly more than total delta for a given event... he just takes that loss and moves on. Even if it's doubled, from 10% to 20%, he's still got a 60% overall win. Heck, I might jump on a few of those myself. My IRA account and I are going to have a serious sit-down about that. SPY with a bit of active rebalancing coming up... sucks that TradeStation doesn't do sweeps. @Magic , I seriously appreciate all your help. I was getting pretty wound up about feeling lost to that degree - all while drowning in endless amounts of info that I couldn't correlate for the life of me.
I have done some blue water sailing myself. In many ways being a good trader has a lot in common with being a good sailor - I can think of nothing that has more in common on so many levels.
$129.01 ROKU 191018C135 $6.50 $129.01 ROKU 191018C195 -$0.12 Sold a call on ROKU (plus a cheap wing; can't sell naked calls yet) for a synthetic strangle $207.71 STZ 191004P192.5 -$1.70 $30.00 Closing at 15% $80.73 TMUS 190927P79 -$0.38 $16.00 Seem to have caught the very tippy-top on it... $140.50 TLT 191018P138 $1.20 OK, so. ROKU has been sorta pacified. Although I'll have to watch the little bugger closely. All the action on it seems to have died after that bounce, which is fine; right now, I've got an inverted strangle on it - yeah, that locks in a 5-point loss, but I've got a total credit of 11.90 on it, so I'm set up OK (and golden if a serious vol drop happens over the next month. Or I'll own some ROKU and ROKU'n'roll it.) They say that you learn only from your mistakes, and that your successes lie to you. True here for sure. My (currently) feeble options powers weren't enough to deal with this effectively, but thanks to the wonderful folks who have helped me today, I feel a lot more competent to handle it the next time it happens. Code: They say the market is the enemy. Meanwhile it: -helps u meet incredible ppl -humbles u when u think u're the shit -forces u to look deep inside urself & fix ur mental issues My friend, the market is only ur enemy if u choose to remain a stubborn fucking cunt -- AllDayFaders via Twitter