I took OR and financial engineering classes to boost my gpa. The end joke was on us because it was easier to get into Wall Street from an OR major than from the real engineering majors. So in the end, who was the smart one?
So, to finish up with a bit of harassment By chance, I had dinner with an old friend who knows a fair bit about the whole trade advisory thing and many other retail-oriented services. He deals with it for a living in an enforcement capacity. We had some wine and I got a complete "download" on the state of that segment of the industry. He showed me some web sites. Some of the stories were truly horrifying. I could barely finish my impossible burger (1) So I change my mind. On the follow, I think your service is better than average and probably better than most. I don't believe your track record (2), but I'd rather see a new trader sign up with you vs. a guy that recommends shorting an S&P call against a short VIX call (3). Whatever you're preaching, your clients are unlikely to blow up and as the time goes, they might learn a thing or two. There, I said it and it's official. 1. well, not really - the burger thing is truly incredible, I ate two and I am a fan now 2. sorry, it would take more than your word and some screenshots to override my 20 years of experience in finance 3. that's taken verbatim from another advisors web site - his claims of 80% win rate I believe, but
So your argument is basically: 1. The trading advisory industry is corrupted and full of scammers. 2. You belong to that industry. 3. You are a scammer. Well, I definitely cannot argue with that logic. It is very strong. btw, you claim that earnings straddle strategy has no edge - we keep proving the opposite. Three more winners in the last 2 weeks since this discussion started: LOW straddle 6.8% gain CRM straddle 15.1% gain HD straddle 17.6% gain Again, careful selection of candidates and entry prices. Those 3 trades alone contributed 4% to our model portfolio.
Hi sle, incidentally, would you mind sharing your thoughts on this "shorting an S&P call against a short VIX call" strategy? Why do you think it does not work?
Hi Kim, could you share a few of your criteria in selecting "candidates and entry prices?" For example, do you look at their IV vs HV charts in the past?
I had a colleague at Morgan Stanley who did his PhD at the Moscow State University. He told me an amusing story, very apropos in my opinion. It's a prestigious school and it's very hard to get into. In Russia, as one can imagine, this leads to various forms of corruption and hustling. At some point, there was a guy that was supposedly able to pass bribes to the university admission committee. He'd usually refuse to help, but sometimes he'd go for it. It was rumored that if he is getting involved, the kid was guaranteed to get in. Eventually, somehow the story unraveled. Predictably, he was not able to influence the admission process in any way. However, he was involved with some secretary at the university that saw the lists of admitted students some time before the admissions were officially announced. So if he got involved, the kid was definitely guaranteed to be admitted. It certainly "works" most of the time until a large vol event which will blow you up. Even if that's ok, there is another issue with it. What appears to be a hedge leg (short S&P call) actually adds a new dimension of risk to the trade for a very marginal reduction in variance (also known as a Texas hedge).
This is very interesting, but let me make sure I am getting it right. Is the problem with such a position that if VIX goes up because of a certain event (thereby breaching your short VIX call), even if SPX goes down (which, with a VIX blow up event it would most likely mean S&P is going down) you still lose because the IV would go up (and being shorta a call means negative Vega), negating your delta gains from being short S&P? Also, being short a VIX call seems to have huge negative convexity issues on its own because if VIX goes up the uncertainty (IV of VIX) would go up as well and then you would get double whammied on delta and also Vega?
You know with all strategies or investment ideas I always follow one rule that I learned from Peter Lynch's book One up on Wallstreet, way back in the 80ies. If you dont understand it - dont invest in it. For Lynch this meant he avoided tech stocks not because he thought they were a bad investment, he said he just couldnt fathom how the industry worked and how to value it. On the other hand when Lee Iacocca took over Chrysler he backed up the truck and loaded his Magellan fund with as much as a 10% stake in Chrysler. In the context of the times a rather brave move. Risk is fine but you have to understand what you are doing. Frankly what Kim proposes doesnt seem that outlandish to me but then it appears we read some of the same books. Hedging the S&P against the VIX on the other hand I can sort of see how that interacts but I just dont get the mechanics hence I would abstain.
We are looking for stocks that show consistent and steady IV increase before earnings. Then we look at the charts of straddle prices in the last 4-8 cycles and see when would be the best time to enter (the charts are usually not linear). Then we look at the current straddle price and compare it to previous cycle prices. After we set a price target entry, we just set a GTC order. If it triggers - good. if not, we skip the trade.