How best to make money in mkt crash?

Been plugging things into Hoadley and checking the results.

If buy 50 SPY dec 18 75 Ps at 1.02 and sell Sept 40 75 Ps for .40, total cost is $3500. If even (1,100) by Aug 30 a -1,500 loss, if 1,000 by then 1,000 gain, if 900 then a $6,000 gain, if 800 a $12,000 gain. If 500 a $20,000 gain.

This seems the best gain to loss, staying even to moving a little lower or a lot lower. The key is the ratio costing just a little more but greatly enhancing the gain on drop. BTW this is with constant IV, in crash the gains would be twice as good.

Cheers

 

When you do a spread you'll nix any capacity to take advantage of the increase in vol, and you'll need the position to be ITM on expiration not just on crash day.

 

Spread does not follow the rule of SQRT(2).

 

Redeye, the IV spike greatly helps this trade, if it goes up from 42% now to 55% it makes $7,000 at 100 on Aug 30, way before expire, 7 times more than it makes at current IV ($1,000).

The 50 long 40 short ratio is what makes it shine, it only increased the cost from $3,100 to $3,500, but triples the gain on big drop without IV gain or IV gain alone. Both together (what will happen if it crashes) makes a $16,000 profit at just 85. Plus it it were to drop to 50, a pure cal sprd would lose money, but this makes a 22,500 gain.


Spread does not follow the rule of SQRT(2).-TJ

I searched goggle on that option rule, not sure what that rule is, please expand on it. Thanks

 

The setup in mkt looked good enough decided to put 2 trades on before it dropped to much, the mkt really dropped as was putting them on, maybe I will go mkt next time.

Ended up with 50 Spy Dec 17-10 75 Puts at .99 and sold 40 Sept 30-10 75 Puts for .40, .59 in including commissions. Got 42% IV on buy and 45.5% on sell, one of reasons for the trade. Total cost is $3,350 I could have got $3200 cost earlier in day, it started running so had to pay up.

With same IV at July 29th it will have $400 loss if 110 on SPY, $2,100 gain at 100, and $5800 at 90., and $10,000 at 800., so a 25 to 1 payback not counting IV spike. Due to ratio it keeps going, the opposite of a calendar, $16,000 gain at 60.

In IV goes up to 52%long 55%short (same skew) wow. at 100 its $6,350 gain at 800 a $14,000 gain. And this is at July 29th, nearby.

On Sept 1, where I would adjust/roll forward at same 10% IV gain, 100 is a $5300 gain, and 900 is 11,000 gain 500 is $22,000 gain.

If still 110 in sept with no IV gain, then a $1,500 loss and at same IV gain a $1,100 gain at just 100. This is similar to the type of Risk/Reward Ratio without severe time decay was looking for. Will keep looking, just thought today was good day to enter. BTW from 75 to 60 its flat at $15,000 gain then takes off being 10 long so $1,000 per SPY point.

Did a second trade on ES for $800. Bot Nov30 950 put for 29 and sold Oct29 860 Put for 13. bot 32.7%IV sold 37.5%IV. If it dropped with current IV to 1,000 tomorrow a $700 profit, with 10% IV jump $940 gain. Same IV gain on Aug 16 a $1,000 gain so it actually gains a little with time. On Aug 16 a 1,800 gain at 900. At current IV 8-16 a $1,600 gain at 900, and a $100 loss at 1100. A very small Theta hit for almost 2 months and 16 to 1 profit ratio on 20% decline.

Any thoughts on these trades?

Thanks for all the input. I will check out the other trades more, just felt should pull the trigger today on some.

Cheers

 

I looked at the positions and your math looks reasonable. GL with it.

 

Atticus,

Thanks for doing that. The concept of slightly ratioing a calendar really seems to be superior to a straight Calendar. That concept does not get talked much about.

On that same calendar if straight not ratioed, it peaks about 10K profit Sep1, and at 55 its a loss of $2400 opposed to $17,000 gain with 50-40 ratio, and it just cost $400 more.

Am still all ears to new ideas. Do you know of any better profit/risk ratios on a crash to lets say 900, with such a small theta hit?

The knowledge on this board is exceptional, above mine.

Thanks

 

I see it a lot, but typically guys are adding to the short gamma. I am not of the opinion that we're going to take out the the 666 low, but the 1:1 calendar looks poor on the inversion. I would still want the potential to rollover gamma. Something that you can do with the ratio as well. Your strike selection is more delta than vega right now, but excellent convexity to both.

 

Your position:
+50 SPY DEC 75P
-40 SPY SEP 75P

The 75 strike price is very far away, over 30% from the current price! I wouldn't add extra puts here - just do a straight calendar. If you want to be covered from an utter market collapse, then maybe add 2 extra, but 10 seems unnecessary at this level. This would lower your cost and reduce theta exposure.

I would probably pick a closer straight calendar (maybe add a few further OTM puts) or put on some ratio diagonal spread to reduce the cost.

You could also just buy a simple put option (or a backspread to reduce cost):
+5 SPY DEC 105P

Compare that position with yours at SEP 1 or at any time frame.

 

Hi Premium,

I just did a 85/850 pure calendar at same total risk $3375 ($25 more), its a lot smaller 25-25. At 1100 30 days before exp, it does cut the loss in half, if SP goes up they are the same. at 90/900 they are the same, below 900 the 50-40 75P blows the 25/25 850 away

At 800 its $12,000 gain 50/40 and $6800 25/25.

At 700 its $15,000 gain 50-40 and $3,000 25/25

If IV goes up 10% they both gain about the same.

So at the 95-110 the pure calendar does better, and below 90 the 50-40 does much better. In case a big crash like in 2008 the 50-40 much better. That is 30 days before expire.

If it goes down next week the 50-40 does better at all prices by a lot, a prolem with pure calendars when new, not much delta.

So there are several trade offs.

Thanks