In a nutshell that is my approach, using options as a cash substitute. It served me well until now. If I used margin instead of options in this market, margin call would force me to liquidate and there would be no recovery after the mid March low. At some point I do need to learn some additional option strategies. I sincerely thank you for your help. Regards,
remember, at the core of this these are just PDE’s, a bunch of math formulae.. the first order greeks were originally created for market makers to manage the risk on their books in the aggregate. Then overtime retail started using it, but it was never meant for single trades. as far as the higher orders, I believe having a basic understanding of how delta moves is great, but knowing how delta moves with time (charm) will help better understand how these Greeks really move. It’s not meant for trade selection, order entry, management, etc... more so for a foundational blueprint of study on how derivatives of derivatives derive values on another.
I have found that vega is highly unreliable but in the current market everything is a punt. If you think the Greeks will give you a handle on the prospects of Covid cases( the actual driver) then that is a concern. I've been trading (badly) for 20 years. I think the market is just dumb money being shuffled around, and the best you can do is guess support and resistance. Thereafter trade selection with options is what gives us an edge over the dumb directional money. Of course you can daytrade using options far more cheaply than individual stocks, but for me as a UK trader there is no market for 95% of stocks, so I just trade the index. Since March butterflies have done very well with zero risk beyond the opening debit. Iron condors died some years ago, I reckon.
Why do you differentiate between Flys and condors?? Condors are multiple Flys stacked on each other..
If you are putting on 1-3 option positions per name,I coukd easily see trading without Greeks.. It gets much more difficult as you start to have a position on 10+ different strikes and expirys You obviously couldn't run a short vol book,or not well
After reread this a few times and went back to reread Hull I think I finally appreciate what you wrote: I should hedge and perhaps eliminate the systemic risk if I think I have an advantage in a specific idiosyncratic risk assessment. If I did that in Feb-Mar, I would have been way ahead by now instead of still nursing some of my losses.
Ultimate hindsight analysis on my part,but as we all know index vol was super cheap... A partial hedge would have been a home run..
At the end of the day,you would most likely be long some sort of strangle ,with correlation risk. You would be taking down more theta and long vol,so you would have to be careful on implied vol..You may want to hedge with put spreads,MAYBE a collar....