riskarb of all people would never recommend selling straddles for a living. Perhaps you missed the point in his journal where he was suggesting diversifying tickers with 1-2 lots while keeping the notional risk in check and having a hedge against a correlation under a 2+ sigma move. His journal was more of an education tool than a way to make a living.
Donna, I don't know what happened to RA, but I feel very sorry to hear that. He has been a virtual mentor to me. May God comfort him and his family. I wish we care each other in this group while we learn from each other.
I saw mention of the hedge but no specifics. I have seen riskarb post positions short gamma without a hedge (both vanillas and exotics). Regardless, the journal was just an example (perhaps not making my point concrete). All I'm saying is that people can sell premium (naked) successfully. Should you or could you is not for me to say. If you disagree then we disagree. Cheers
Recent posts have turned a little contentious, but that is not all bad. In fact, friction can bring forth information in a sequence that makes for better absorption by the reader. The âSigma 10â catastrophe event discussion from earlier has now been driven home by the crowd who prefer âbounded short gammasâ hedging techniques versus simple vertical spreading or outright short premium. A google search turned up this: http://www.crest.fr/pageperso/touzi/st04.pdf The math blows my mind, but it sounded like something akin to the current topic. BTW, a simple example of âbounded gammaâ would surely be appreciated⦠as would âselling premium against gamma curvatureâ (which sounds like the same thing). Yeah, I know what the greeks are, but I am in kindergarden as far as knowing how to structure trades with them. And if no illumination is forthcoming, no problem⦠Iâll dig it out on my own. BTW, a âSigma 10â event would give most traders/investors the âwilliesâ. Iâve got a few investments fully hedged with LEAPS that could benefit from serious underlying appreciation, but will otherwise either break even or return about 1% APR in dividends after being reduced by the cost of the LEAPS. If some of you have figured out how to hedge against catastrophic mkt events thru structured Option positions, while making serious profits w/o the bad things happening then kudos to you. There are some sharp folks participating in this forum, and I am getting a better education from you than from a dozen books on my shelf about Options. Iâm still plundering thru a year and a half of posts and enjoying the venture, all the while keeping up with the current dialog. Gees⦠you guys do like your acronyms donât you! Anyway, thanks for the education. Mech
Healthy discussions here .... just remember that this is a public forum and nobody owes anybody details of his/her trading strategies.
There are many ways to bound gammas or sell premium against "curvature". A short vertical is a simple example of bounded gammas. A calendarized backspread is a simple example of selling premium against curvature. The theme of net owning gamma(curvature) for cheap or free through vega is a common one among floor traders and professional option traders. It is more of an inventory(month to month) type of approach than a simple long/short delta/vega bet. The art is in finding a way to pay for that vega in a risk/haircut efficient way. It is usually done through theta or flipping spot/short duration paper or some combination of both which may include some vols/skew flattening bets. That's where one's trading skills come in handy and make or break one over the long term which is precisely where mav's experience comes into play and no one can blame him for keeping things behind a curtain.
Flipping through Oct's Opt mag you run across yet another premium selling HF manager, this one ICs. Question for those of you who've been around the block for awhile - how much more room is there for all these newly minted ex-software execs turned CTA gurus? VIX lower and lower with premie and vol shrinking from imbibing Alice in Wonderland elixir. Gamma becoming so cheap as to be irresistible. What will it take, a sigma tsunami to flush out all the partakers?