Hedging the wheel

Discussion in 'Options' started by markthepadrone, Sep 16, 2022.

  1. I only comprehended about a third of this thread but I enjoyed it.
     
    #161     Sep 21, 2022
    ondafringe likes this.
  2. ondafringe

    ondafringe

    I understood less than you, and I enjoyed it, as well. :)
     
    #162     Sep 22, 2022
  3. He didn't mention 25D, but if you want to normalize the 25D RR, express it as a ratio instead of a difference. That is PutVol / CallVol* instead of (PutVol - CallVol) / ATMFVol. This won't be as well normed to tenor as Dest's metric (it's subject to a Lucas critique in that regard), but it won't be that far off either. In fact it is nearly linear in terminal skew-edge in BP (difference in RND minus null of LN-with-fat-left-tail) in the vicinity of+-25D. You'll have to come up with your own critical value -- maybe 2.1 instead of 1.8, since the metric is not the same and you want some leeway on that misspecification.

    *BTW, that representation (PV / CV) is an exact quote from one of Dest's posts from April 2018. So if you had read all of Dest's posts and taken notes, you would already know this. And for another clue on trading skew note that 95% of the mentions of the term LVLD on ET are either in Dest's posts of in posts that quote him.
     
    #163     Sep 25, 2022
    ET180 likes this.
  4. Cbos

    Cbos

    Hi, why not exchange your stock for a DITM option to reduce downside risk and increase leverage?
     
    #164     Oct 11, 2022
  5. Cbos

    Cbos

    Hi, why not exchange your stock for DITM long position to limit downside risk and increase leverage? Turn into a PMCC.
     
    #165     Oct 11, 2022