I am trying to build and maintain significant left tail convexity (vega/vomma) to "protect" an array of short vol structures (+ theta) that are placed closer to the current market price. I'd also like to really cash in on a significant spike in volatility.
I have to admit I'm at a slight loss w.r.t. the above. It seems to me you either want the risk or you don't. IOW, I don't see how you can "address" this risk and still collect premiums. There aren't any free lunches... that's exactly what the principle of no-arbitrage implies. With all due respect, I think this trade will catch up to you and so I'm not a big fan of what you're doing. If you think you have "edge" here, can you explain what it is? Or, perhaps you're coming to the conclusion that this "last war" will end in defeat? I mean, it's pretty easy to sell DOTM puts and then wait a bit before buying them back. I don't see economic value in doing that; it's a parlor trick waiting to unravel. OTOH, if you have some other investment strategy for which you'd like downside protection, then by all means... buy the puts and hope they expire. I just don't see the need for the parlor game (and the negative side-effects therein).
So you are collecting free dotm puts to hedge vol spikes for the portfolio, and wondering if there is any risk of ruin. Sounds interesting. You are aware of your risk at inception. For what I understand you are increasing your volatility exposure when you start.. and that exposure last for about a month (28days)? I like the idea, but don't you think that 28 days is a long time with increased volatility exposure?
I agree with this. I'm saying that I believe I "paid" for the lunch by bearing and surviving the initial early period where I was net short puts. The spreadsheet also indicates that I was net short up to 15 puts briefly during the spring of 2022. I think I got away with it and have reached an escape velocity. I appreciate the criticism; the reason of my post.
Well, there's certainly nothing wrong with taking chips off the table while you're ahead. That's a strategy I can get behind!
Yes, it was a risk I. I was net short more puts in 2022 waiting the structure to grow. My point is that I stuck to this without ruin during a challenging time. I understand that though volatility was "high" since I initiated, it wasn't epic. Nothing like a volmageddon. The regression line on the spreadsheet has encouraged me.
Uh.... here's where you lose me. Either you "got lucky" or there's an edge; some persistent economic value you're creating. In the former, count your blessings and get out. In the later, double-down... but I have yet to understand exactly what economic value is being created. Can you describe this value? Remember, if you just "got lucky"... then you'd be seeding a ticking time bomb where you can lose far more than you ever collected to begin with. That'd be unwise IMHO. It's like saying you jumped out of a random 15 story window and lived because there were a few lucky trees that broke your fall. And so... next time you're going to jump out of a random 10 story window instead. Will there be trees outside, IDK! The five story difference won't save you, it's the presence of tree branches.
Here's a visual of my current structure. All models are flawed; some models are useful. I consider the TOS analyze tab to be useful. P/L day stepped 7 days for the next 28 days.
What would be really cool IMHO is if that plot could be played through the evolution of the structure over time... as a video; just to see the duration and extent of any gaps which might exist while building it.