For those who size according to optimal f allocations - I primarily trade spreads and am wondering how opt F can be applied, if at all. Haven't seen much discussion in his work, and google only returns a few results mostly pertaining to unsuitability for these purposes. Can it be done? How does one covert absolute returns to log returns when calculating p parametrically for spreads?
I have some Ralph Vince material... I read it, but really hard to understand much. I'm still absorbing this knowledge.. But its great stuff.
what have you read? its not too bad. there are some concepts he's unclear about imo but im doing my best to fill in the blanks. my favorite concept he talks about is the sub account method to guard against ruin
Mostly all trading is spread trading. A vertical is spread trading. Buying Russell, Selling Dow is spread trading. Theres a million and one threads about spread trading on these forums, be my guest.
ain't that arbitrage ? do you bet on the spread per say ? or do you bet on one index moving more than another in opposite direction ?
arbitrage is locking in a risk free profit from a spread, from a discrepancy in price discovery. trading a vertical is not arbitrage, you’re buying one option, and financing it with another that you sold. Thus you have two prices within one trade (spread). a box spread, locks, jelly rolls, conversions, reversals are examples of arbitrage, but spread trading in general is not arbitrage. Hope this helps
You can bet on either or both. Eg commodity calendar spread btwn front month and back month contracting/expanding due to supply issues or betting that Russel will outpace the Dow while maintaining net neutrality
How do you maintain net neutrality? Maintaining your delta? Just curious. And also @ionone you can spread throughout the term structure like duca mentioned. You can buy an option in a further month (July) and sell an option in a closer month (June) to initiate a calendar spread. Or you could buy+1 June, Sell-2 July, buy+1 August to do a calendarized butterfly in commodities products. Trading spreads is endless and every trader should eventually gravitate from pure binary spot wagers, deltaONE products, to >1Delta derivatives (vanillas) and spread your risk.
You could depending on microstructure. I meant it moreso as a turn of phrase (long/short hedge vs outright directional, not necessarily continuous hedging to flatten your delta)