You're right. I don't balance the greeks out daily. I have a big problem with strategies that require it, such as many delta neutral stategies. Balancing out doesn't need to be daily and sometimes not even weekly, although I rarely go for a week with an unbalanced portfolio. The balancing you speak of needs to be done to suit your personal strategy. Mine doesn't require it. My strategy hinges more on balanced entries than constant adjustment. Anyway, the reason I didn't go into more detail was because of the nature of your posts. You are posting as one who is asking questions to better his trading skills, while you seem to be looking for a debate. I am not inclined to enter that debate because we will be debating personal styles. If your personal style (which you seem to indicate is non-speculative) makes you money then it is no worse or better than mine, as mine also makes money nearly every month for quite some time now. IV_trader makes money focusing on IV and earnings reports. Others prefer to try to gamma scalp "neutral" strategies. Everyone has preferences, and there is more than one way to skin a cat. It doesn't matter how you do it as long as the job gets done and you are satisfied with the results. In any case, there is no such thing as a non-speculative investment. Even when buying fixed income securities you are speculating that interest rates won't increase. If you are good at what you do, you'll get compensated proportionately to the amount of risk you are taking. If the r/r is lopsided against you then failure is inevitable. If it is lopsided in your favor it is referred to as an edge, and you will make money consistently. Point is, speculating doesn't equal a blown account. Poor risk management equals a blown account. My comment regarding a lack of understanding on this thread was prompted by the statements that were being made. These comments made it very obvious that those making them were quite unfamiliar with options, I wasn't trying to be a jerk. IF someone really wants to learn how to trade options there are a few journal here that do a fairly good job explaining the various aspects, but it would be wise not to enter a discussion by attacking the nature of the strategies themselves.
You're indignant and self-righteous... fantastic attributes for an option-trader. Options are priced in volatility -- OTC interbank conventions price options on yearly vols, sans premium. So, "always pick[ing] underlyings that move in your direction" has zero impact with isolating/trading volatility... Buying/selling an XYZ atm straddle at 50% vol is not a directional bet, savvy? Have you considered the fact that some of us trade options for their intended purpose? As hedges or volatility bets, and not stock-proxies?
I want to emphasize this post as to me the most compelling aspect of trading options- risk control . Long options have it built in- you can never lose more than premium paid. Simple but key.... One other point about "their" ie options market maker's advantage that has not been mentioned amid all this defensive we are not we and they are not them talk: MMs, unlike retail traders, can have concurrent bids and offers on the same contract greatly enhancing their odds of capitalizing on the built in edge of the bid/ask spread.
Of course, the same holds true for futures purchased with 0 leverage. Leverage is built inclusive of the option premium. Anything else (futures, stocks, forex) doesn't necessarily have to be. Leverage leverage leverage.
Wrong answer. I was reading a website (http://www.21stcenturyinvestoreducation.com) the other day with an options knowledge quiz. That was one of the questions. Their answer was that if you somehow forget or fail to close your long call that is ATM or slightly ITM, it can be exercised, then the company can have some kind of bad news over the weekend, so you wake up Monday morning owning shares that are now worth less than what you paid for them.
It's called an exercise; assignments occur on short options. And you're similarly-fcuked if you forget your parachute when jumping out of a perfectly-sound airplane. The only response to such a question is to beat the tester bloody with the quiz book.
Yeah, I went back and edited my post at the same time I was adding the web address, but assigned is still correct. You hold a long call, it is assigned to someone who holds the short end of it. That's the way I felt. They had a few other "trick" questions which I don't recall at the moment.
Indignant and self-rightous, its a good start I agree, but do I have a "positive attitude", that's what some feel is the missing ingredient. I would just say that some consider people pessimists, but pessimists consider themselves realists. Anyway, I appreciate you're using the words "volatility bets", since it has the word bet in it. Am I being a realist or a pessimist when I say that... we'll let the reader decide. Good point about hedging. I should know the answer, but let me ask, is your ATM straddle above completely neutral on its greeks? And as the underlying moves, do you rebalance them? Regarding the other post, there is a very long thread somewhere on this forum about getting hurt by automatic exercise; a novice trader with some GOOG calls. Ask him if he thinks its just a quiz question. http://www.elitetrader.com/vb/showthread.php?s=&threadid=51251 "On Monday, IB liquidated GOOG at the open for a net loss of around $10,000. Now IB wants me to deposit $9200.00 in my account to settle the negative balance."
The atm straddle is short gamma at all points on the distribution, as well as vega. There is no method of neutralizng either w/o buying options. You can overhedge in spot to overwhelm gamma, but then the hedge becomes the risk. If you're looking for someone to hand you edge and neutral-risk you're looking in all the wrong places. And no, I don't neutralize my exposures in discrete moments -- doing so would be masturbation w/o the payoff. I trade gamma and vega bets; either a bet on the distro or shape[stoch vol]. I think you're confused in your belief that the retail option trader should somehow emulate the arbitrageur or market maker. Market makers have the advantage of risk-haircut, but they're also forced to trade paper to maintain their position in the pit/post. The retail trader can trade when the opportunity avails.