Who is asking for proprietary information? Not me. Unless, of course, 100% of what you are doing is proprietary. Is that the case? If so, I understand that I have the privilege of conversing with one of those very rare individuals who is doing top secret stuff that no one else is doing, so pardon the intrusion into your ultra-secret privacy. Funny that some other proprietary traders doing secret stuff write articles and books on their general approaches and strategies. I guess that will never be you. You have stated that many other hedge funds are doing this strategy, so would it be a violation of your super-secret code if you shared what others are doing? Or do you really know? Or did they swear you to secrecy too. Did you really develop your models with no input from any other human being, or did some generous soul actually share some information with you? If you are trading public and private funds, then each of these funds must have a prospectus that outlines the trading strategy used by the fund. This is public knowledge and therefore available to prospective investors, not just the fund members who have RE'd, whatever that is. What funds do you trade? Is that a secret too? So many secrets. What is your purpose here if you cannot share anything, even general basic stuff. Isn't it ironic that you who have refused to share anything, then turn around and accuse me of looking for a handout? That's like Scrooge accusing everyone he knows of wanting to steal his money. It's time you gave yourself a growth lesson in sharing and openness. Nobody here wants your secrets. If you refuse to share basic information with other people, then at least stop making accusations of others that are false. I do my homework, thank you, and if you have nothing to share here, why are you still posting? Do you have anything constructive to say? If not then stop posting and just go away.
With all due respect, GFY If you need help with the aforementioned acronym I'll be happy to elaborate in a PM. I've been doing the dispersion/diffusion trade for 5-6 years and I started from square-one. I'd developed some index-arbitrage models(since sold to CSFB) and this was a natural extension of that work. I find it profoundly ironic that you would question my motives when you've all of *4* posts on ET. Do yourself a favor and peruse some of my 980+ posts before you come to the conclusion that I've nothing to offer. Maybe I don't, but coming from you the statement is ludicrous.
Correct w.r.t. the public funds. The strat is broadly/generically outlined. So, here's the abridged version: buy(sell) index vol, sell(buy) street vol. What funds do I trade? NOYFB; unless you're willing to write a check for a mil, then I may change my mind.
riskarb: On behalf of all the ETers you've helped with your thousand+ posts, thanks for all the knowledge that you have so graciously imparted to us. Guys like mysticman are in no way representative of the many peope you have helped along the way.
Hello: I agree with Riskarb. I have had people PM me this weekend already asking me about convertible arb strats, how is it done, how do I hedge, how do I evaluate the basic bond. I have to say, it is a lot of hard work to flesh out these strategies and there are plenty of resources for folks who want to put in the time and effort to get their chops together. I want to be perfectly clear about this however. I don't believe that these opportunities are arbed "out of existence". I do think however that a skilled experienced operator obtains an edge with the little nuances he uses aside from the basic strategy. If RA is willing to state the basic method, great, if not, I am willing to head off to the bookstore and then back to school if necessary. If this is so interesting to others, I suggest they do the same. Have a pleasant holiday everyone, and good luck in the markets, Steve46
Hi everyone, I have been lurking around this forum for about a month. I'm very new to options., although I've been "noodling them" for a few years now. Although I'm an equity analyst for a buy-side firm, this type of investing is NOT going to grow a nest-egg fast enough for my liking. Anyway, I would like to resuscitate this thread on volatility dispersion trading. The strategy I have been contemplating and have put on for the past few months has been to short 50 or so straddles, and protect them with index option wings. I've used the MDY options for the wings, and have shorted midcap companies with high premiums. I have yet to make any money doing this, but on the other hand haven't really lost any. Here are my questions: 1. Is this viable? From the other posts especially from Riskarb, the number of nuances available in the broadly described dispersion strategy would seem to include something like this. 2. Any advice on how to improve my basic strategy? One thing I've learned already about options is that the bid/ask spreads eat up a lot of $$$. I think I'm going to move up market, to S&P 500 companies and the index. Another thing I've realized is that for this to be done well, it's not a part time activity. There are lots of things to watch. I hope there's a career change for me in the future, but for now this is premature. Any help would be much appreciated, although I certainly am sensitive to the proprietary nature of some of the strategies that are in fact people's livelihoods. Thanks Any book suggestions would be good too - I'm reading Natenberg and Cottle right now.
Neat idea -- trading an iron butterfly replication/dispersion. Excellent actually... selling downside gamma into the micro-risk and buying upside gamma in the index. I'd expect it would easily produce a multiple of initial edge lost. I look at the "vol box" line to see the relative value of trading +/- dispersion, the vol premium in basis // the component[street] vols. The execution-var often exceeds the return for the strategy. I would calc your vol-box (component vols - index vols) and maintain a line which is inviolate. Right now, anything under 1200 basis isn't worth the micro-risk on the components. I have some ideas on +dispersion, but I can't really go into it here. With +dispersion you're trying to short index/long comps for a vol-box of something less than 800 basis. Run an excel sheet with a composite vol-box as a daily column. It shouldn't be too difficult to model -edge from execution and discount the vol prem in the model-composite. You'll do very well in +dispersion if you get some -corr outliers. +dispersion can be traded to haircut limits. It gets a bit more complicated in terms of adjustments, and I can't get into it here. No cloak and dagger, but I have been working with someone on a +dispersion portfolio.
New to options yet doing one of the most advanced strategies out there? I wonder if you realize that you are doing a reverse version of dispersion? The market environment usually -- and for the past few months -- has favoried the standard version of dispersion, sometimes called +dispersion, because index IV has been rich. So in order to go further with this, it would be helpful to know what your basic rationale is for choosing this form of the strategy? Why have you decided not to do the standard dispersion, and why you think doing this hybrid butterfly is better than other choices? Yes there a lot of things to look at, yet I do believe that this can be done EOD or part time. After all, it's not scalping.