Great Question DMO. Since his style or method or whatever is based in part on that, it would be interesting to know how thats calculated? I am guessing from context that when he said it was a long fund he was thinking net long options since its pretty clear he didnt know what delta was.
My performance (which is scalable) is better than 90% of actively managed mutual funds and likely much better than the average hedge fund, yet I feel I'm banging my head against the wall here. I did start to describe what drives my trading but the elite traders can't seem to get past various semantical issues. I'll pass. I know what flippin' delta is.
You call these semantical issues but we do not know you and when you use terms incorrectly for someone who is coming across as experienced it makes us question. Imagine a Calculus teacher calling a square a circle or a circle a parabola. Would you still be impressed if he claimed he got all As in Calculus in college? The point is you claim you know what delta is but do not understand our points. Using beta incorrectly does not further your case. Your performance is a wonderful claim that many make here on ET so you will not find anyone bending over backwards to pat you on the back. Everyone at ET makes money and is a successful trader, just read the threads.
Optioncoach, I respect your opinions. What term can I use to describe the books correlation to market moves? My book is compared against the SP500 and I absolutely need to monitor and maintain the level at which I want to follow the market. This is daily maintenance, and is really an important part of my philosophy. If I prescribe a (insert term here) of 2.0, and market moves 1%, I expect the move in my book to be in the same direction ~2%. This is NOT for individual option positions but for the book! It's a holistic approach. Book delta is way too confusing for most. Apparently beta is too. If you have a better term then let's hear it. Yes my wording is unconventional but that's because my approach is somewhat outside the box. I am not following the textbooks. Over the past year I am plus 32% vs the SP500 with a standard deviation similar to GE. I tried to describe the size and shape of the forest but we're getting hung up on whether one tree's bark is brown or burnt sienna.
First a story, I was a runner on the CBOE way back when. I had to get a simple ten lot filled. I walked out to the pit with 50 market makers and the lead guy ignored me for five minutes. Then I handed to order to a broker who gave it to the DPM (option term for specialist). He held it another five minutes then asked me some questions to embarass me, after like 15 minutes I return with a shitty fill for the client not knowing wft just happened. You have had several very good option traders respond fairly patiently so far. Consider this like a bad review. Now the beta of your portfolio is 1 were you to buy and hold spy (more or less). What these guys are trying to say, I think, is that you should be concerned about long or short deltas, that beta the way you are trading is not relevant. Also, what is your style of trading intraday, intermediay, long term. Negative theta is a confusing term here, I think you mean short theta as is selling calls or a straddle. You have to know the greeks (delta, etc) or you will get killed in options.
Maybe you could just use the term "leverage," as in "My fund is leveraged 2 to 1 against the S&P500 - if the S&P is up 1% my fund is up 2%." Or make up a similar sentence with "correlates" or "correlation." I'm still curious how you determine sentiment.
If you are trading pure SPY options then you are trading a derivative of the market or S&P 500. Assume you want that if the market moves 1% your portfolio moves 2% then you simply need to assign dollar values to understand that you might be getting something like that. First off if your net portfolio delta of your SPY options is close to ZERO, then your positions will not move barely at all if the market moves, you need to understand that. Options have no beta really so you need to understand that whatever figure you are coming up with is wrong and I can say that with 100% confidence without knowing what positions you have. Lets assume the SPY is at right now 123.59. A +1% move will put the SPY at 124.82. If your portfolio has a net delta of .20 then the positions will increase about $20 for every $1.00 increase in SPY. Assume you are willing to invest in $100,000 worth of SPY which comes out to about 800 shares at 123.59. After the 1% move the portfolio at 124.82 is now worth $984.00 more. Now for options lets assume, and this is a bad assumption made off the top of my head but lets do it, you put $100,000 into your option positions with a .20 net positive delta. .20 is per option so we have to dollar equate it. Hopefully atticus can correct any math mistakes. .20 * $100 equals $20.00 move per spread. I cannot know the cost of your position but lets assume you were able to go in with 100 spreads using $100k debit or margin. So $20 per spread and you did $100. When the market (SPY) moves up a point, which it did more than that here but lets stay with a point, your options position should theoretically increase by $20 * 100 or $2,000. So using back of the envelope math and such, the outright stock position increased $984.00 on a 1% move higher where a assumed cash equivalent option position moved $2,000 on a 1% increase in the underlying. This is the leverage of options. So you see if you figure out the net delta of your portfolio on the individual calls and puts and then multiply it by the number of positions you will get your portfolio delta in $ terms. Thinkorswim.com does this so I can see how much the portfolio will increase or decrease for a theoretically 1 point move in the underlying. So you see if you understand your portoflio delta and have a platofrm like Thinkorswim that converts it to $ values then I have how much my portfolio will move up or down with move in SPY. Then simply calculate a 1% move in SPY up or down and see how many points that is and apply your $ delta value to see how much the portfolio will move. This is how pros use delta to measure leverage in their portfolio option positions and sensitivity to the underlying which in your case is SPY or the overall market. Easy Peezy