I hope this does not come across as intrusive or imperious but here are my two cents on this. It seems to me if VIX/vol is down and premium is low then that low volatility is precisely why the premium is low. It is âfairâ to get less reward for less risk â not that any of us are fair minded unless âfairâ benefits us personally. In such low premium/vol times it may come down to a judgment call on opportunity loss â i.e. can the time be spent better elsewhere? Since I personally have not yet fully developed a broad range of option âtoolsâ and âtacticsâ I prefer for now to stay with the Iron Condor mechanism/tool and take less premium during times of less volatility (this is precisely what the IC is most suited for!). To me the only issue is ratifying if that low premium is warranted for the âreal-volatilityâ of the options period. I simply do not trust the neural-net/borg thesis of perfect collective market wisdom nor the MM being âfairâ in balancing his vig and supply-demand volume with an efficient price etc. In fact I think any option trader is essentially saying this exact same thing when they enter the market in any options position since we are all betting against or with âThe Greeksâ to greater or lesser degree (beware of Greeks bearing "unreasonable and unexpected" gifts). But I also know that oftentimes implied vol can suddenly spontaneously emerge at any time â sometimes its real with respect to real events or sometimes itâs just a transitory shift in a supply-demand imbalance (e.g. someone just accidentally inverted the debit/credit flag when she submitted her large order while talking on the phone). This sudden change in vol is where I like to adjust my sails so to speak. Fundamentally though we have to be in the market to profit by it (trading up, down or sideways). But at times the market does not âmake senseâ it might âmake centsâ to be long in cash and playing time in the positive sense rather than in the negative way that ICs do. I have a theory that sometimes we must be in with at least "marking" bets to insure we have an opportunity to average out long runs of wins and losses. Temporal, directional and positional diversity also seem to be essential for success. I also think that lower premium can reduce what I call our "head room" to escape/exit a position since that implicitly constrains our flexibility to adjust so that must be considered as well. I think an important concept is "situational analysis" and even a subjective "Bayesian analysis/inference" (http://en.wikipedia.org/wiki/Bayesian_inference) before entering a position. For example, before I enter an IC I do my own situational analysis for the period. I fundamentally rely on the fact that SPY has 500 component stocks from different industries and different beta's to "smooth out" the individual micro level âsurprise eventsâ. This tends to make the overarching concern (or expectation) for any particular option period simplify and resolve to mostly assessing prevailing macro level themes. That means I can focus predominantly on general current economic macro level sentiment and outlook. I derive this from a rapid ad-hoc domain analysis (more like Kentucky windage) for the options period with respect to the number of predictable steering events (e.g. scheduled events like economic reports, earnings reports, analyst coverage, FED meetings, political events/changes). I also consider a couple of subscription advisory services as an independent âconscienceâ for sanity checks. I also allow for and in fact rely on both random unanticipated positive AND negative events as mid-course opportunities. After all when vol expands or shrinks suddenly these are a time to substantially change course with radically expanded or contracted positions or new outlooks. This is where the real energy/money is. These opportunistic winds are when I like to to adjust my sails (or my rudder) to the wind and âgo with the flowâ since my only destination/objective is making money and enjoying the ride. Again, my underlying rationale here is that there is a need for temporal diversity and multiple bets/positions/mechanisms to be able to offset or profit by the occasional long run of statistical losses or wins that might occur. But to optimally profit by change I think it really takes a full bag of tools/tricks so one can play both as a writer and a buyer. But in low volatility and sideways markets I like the Iron Condor as a boring but consistent small return income machine. It usually can beat by an order of magnitude the money market rate of waiting (5%/12=.42% per month) long in cash. TS p.s. Sorry I rambled so long here ...
No secret. It's just that in the past I have told people what I do and they don't fully understand and they try to trade it and they lose money and they say it doesn't work and I tell them, that is NOT what I am doing. And they say "huh"? I just don't want that liability.
No, they try to piece together what you are doing by knowing 5 of the 100 pieces. Of course they lose money and blame me then.
Mav, i understand that but 90% will lose regardless. Judging from the recent posts, i see a lot of interest in your style which doesnt necessarily mean people will try to blindly follow or "reverse engineer" it. I am not one to suggest you should say or reveal something you dont want to but given the high regard people hold you in, you may even be able to cure a few souls from the cheap gamma addiction. Just an observation.
Head and shoulders pattern on RUT forming... If it fails to break the neckline, then it becomes Hound of the baskervilles, right?