Yeah, according to him, Ray Dalio, James Simons, David Tepper and company must be lucky. The only way anyone can make money is by selling volatility or HFT. That's it.
Here is one thing most people don't consider: As long as margin is not used, if the market falls, just let the stocks to be assigned and suddenly the drop's % gets much lower in relative terms. You don't have to buy the puts back for 5-10 times more, once the stock is assinged, the drop is in real %, compared to the market. So the market drops 10% more, the portfolio drops the same, not being whipped out.
You realize he is selling puts on the index...you do not just sit around and wait to get assigned. If your short puts go from 1.50 to 5.00 you cannot force assignment.
I was kind of shocked by the bold statement, you could tell Aaron was too lol. It did get me thinking though that maybe he does know some numbers on success rates since he did own a brokerage.
Uh, no. If you sell an OTM put for 50 cents, market sells off significantly making these ATM or ITM, and it turns into 5$ due to gamma cranking up and delta following you *might* be able to wait out that initial IV spike but you're not getting away from what gamma just did to you. It's gamma and vega that is eventually going to kill this strategy. While one may naively think that they're more exposed to both the nearer to the money they are what they're not thinking about is how they're much less exposed to *changes* in these two. The further OTM the more embedded the risk and the harder it is to control when things go wrong.
As I understand it, gamma risk increases the closer you get to expiration. To my knowledge, the only part of my strategy that helps at all with gamma risk is closing the trades at approximately 21 days to expiration. Are there other things that I could be doing to help with the gamma risk?
Gamma is also at its highest when ATM. This makes sense given its relationship to theta. Therefore, ATM straddles would have higher theta/gamma than equidistant strangles. Like Sle mentioned a few posts back (#732), if your theta is in a comfortable range, the gamma risk will take care of itself (or at least that's what I took out of his statement).