This from you? The obnoxious, verbose newcomer who is single-handedly trying to ruin this board? We should cut you a break? You have got to be kidding. Mark
Exactly, those vanity posts made me take this thread off of my RSS feed. On a more useful note, has anyone been able to get a copy of Taleb's "Black Swan" yet? Ugliest
Thanks for the explanation, Mark. I do not understand what curvature really means. But now that you have indicated what you have done I can set up some theoretical positions in ToS and model the risk profile and look at the greeks to see what this all really means. I just needed something to help me get started. I should have been more clear that I didn't necessarily need the strikes just the general idea that you are buying more Feb calls than selling Jan calls.
700bps? The only posts in the entire journal that use the acronym 'bps', refer to Bull Put Spreads. Burr referred to a DEC 1460/1470 SPX call spread. So what does the term 700bps volatility refer to? And if a debit spread might be more appropriate, what strikes might you be inclined to lean toward? I've read a lot here and I'm learning quite a bit, but if I'm not willing to show my stupidity then I'll only make the learning curve longer.
bps = basis points - i.e. 1/100ths of a percent (of volty change). Asking questions is not stupid.. The reason, perhaps, to use basis points as opp'd to just "X% change" is that "X%" can refer to an absolute number (ie volty increase from 10% to 11% is 1%) or a relative number (ie increase from 10% to 11% is 10%). Using basis points always means an absolute change or amount.
Coach, Sorry for your rough day. I think Mark has explained the idea well enough, but I want to add that the long wing strategy has an added benefit for your prop account. You should look at how the long wing affects your haircut. Once you look at it from leveraging perspective, you will get a new insight. That is the reason why I become more interested in optimal leveraging. Of course for retail traders, most of the time the long wing is a waste just like an insurance. I don't know how many of you are interested in optimal leveraging for haircut or other risk-based margin, I like to have a thread on the discussion on optimal leveraging if there are enough interest.
I am sorry, perhaps i could've been clearer. I wasnt recommending debit spreads when i used the phrase "paying debits". I was thinking along the lines of a delta time spread or calendarized backspread. It might help if you think of the position as a debit spread with positive theta. I said debit because unless you are willing to take onto some serious gamma exposure(when you widen the strikes), you will have to pay debits for these. You earn with a trade to your strike(s) and lose away from your strike(s) with a neutral to slightly positive PnL under a flat market. Slightly different bet than the average cheap gamma IC, but given where vols are ticking these days, it's a superior play. Of course, as mark suggested, if you are set on being short gamma and dont lean deltas than you could ratio the position according to your gamma exposure you are willing to take or should i say "protect" and plug holes as the market moves.
I don't get it. I tried analyzing the following position: STO 10 Dec 1425 SPX BTO 20 Jan 1475 SPX The idea here was to maintain a credit. The credit is about $1,000 which on a $50,000 margin is 2%. The risk profile to me doesn't appear to provide much of an advantage (see attached). If my short gets breached and then the breakeven point of 1431 is also breached, I doubt I'm going to hope that the SPX will be greater than 1502 at expiration so that I can make money. So for this scenario I see no practical advantage of the above position over an unratioed diagonal. Indeed, the regular diagonal would have about a 4% credit and still have a breakeven SPX price of 1431. My comments hinge on the fact that I wouldn't let the breakeven price be breached without taking action. I just don't see any effective hedging power on this particular scenario. So is it the scenario that is not a good one, or am I missing something.