Sensei,what does 2x1 vol/shares mean in "layman te4ms".... Are you Miyagi-ing me?? Sincerely, Grasshopper Tao
Here's the generic selection process. No vol-modeling. Treat it as though you don't even know the skew figure or ATM vol-line. I do this bc is repeatable by virtually anyone. My wife would be able to generate a plan (in overwrites) if I were to drop dead tomorrow. It's as simple as writing a put/CC. Stock selection Portfolio selection/betas Tenors Strike selection Heuristic/stress I will be back in a bit with an example in GOOGL from Friday-close.
I will run an optimized portfolio in green text. It's easiest on the eyes when using color on a forum. I won't be answering any questions on the optimized thingy, but it will have its own sheet.
My wife (Steph) likes synthetic straddles (2x1s) as all she needs to know (she's not a vol-gerb) is that the strike is best case PNL on the structure. Sure, vols can explode but I've never seen a 2x1 trade to the strike and lose money. Not in 22 years of doing this shit (OW-specific portfolios). No concern about vols/skews as the stress is simple. Tenor and strike selection are the only inputs.
By "synthetic straddle" I am referring to a true synthetic; 50 shares to one short call (spin 1/2!) or 100 shares to two calls. These are traded OTM and the entire structure is covered when the strike is touched; either by a cover or a natural straddle in forward n-month. I am not recommending shorting against the box (wink wink), in fact, spreading the cover in the natural almost never makes sense as you're adding extrinsic in an amount that will likely exceed any benefits from tax deferral.
Journal alert (sic). I am going to limit my comments to my journal and threads where I am the OP. I will not be posting to other forums on ET; options/derivatives, pol-forum, etc. So don't expect replies anywhere but here or at my public email address (convexx at gmail).
It's not humanly possible. You will eventually read something that is so outrageously stupid that you can do nothing but drop everything you are doing and type a reply