Bobby, at the end of the day I suppose sharing your stuff and getting a discussion going is a useful contribution, so thanks for that. The exaggerated hubris and trollish posts at times is a turn-off and may incite some of the reaction you get at times. With the additional clarity on your strategy, I still think that it’s not helpful to run continuously on its own. But paying for downside convexity if it optimizes the rest of your book isn’t always a bad thing. Without knowing the actual strikes, I think over the long haul you are going to have negative carry from the front strikes in excess of your short put. Near term gamma is expensive on $ even when it’s deep otm. I’ve carried a lot of this stuff at times and although the theta burn may seem small, it’s such a poor mean/variance that little numbers start to rack up quickly over months since you can usually never make it back on the gamma unless you are in an abnormal regime like this. If you are net long delta maybe that will help the carry since markets tend to drift up, but again some risk is then subsidizing the position. If you were holding during Feb into March that will probably pay for years of negative returns going forward, so good job on the timing. This structure feels more like a bet that there’s going to be a hole in intermediate downside portion of the return distribution, since as stated previously a slow grind down is going to hurt this strategy because you will take it on the short put but it won’t be enough to explode your longs. Impossible to fully convey with any strategy that isn’t completely automated is the intuitive portion of the decision making. If you’ve got a feel for sensing when turbulence is coming up, or some natural edge in squeezing a lot of juice out of long gamma when it’s really ripping that would make all the difference to the LT return.
Here's one of my income trades in the portfolio. I do a few other things besides selling naked puts. I have to have my upper expiration line above zero, and this structure helps. I put these on when volatility increases.
Last year I actually ran some analysis of diagonal put spreads using historical SPY stock prices + HV. As I recall, the results weren't that good. I am going to run another analysis using 0.6 ratio overlay on a short put. I suspect @Magic is correct, mechanically running any spread or hedge won't yield earth shaking results. Judgement is needed to profit handsomely.
I don't understand why if your portfolio is large you doing puts on them for hedging, sell ES and hedge that. I don't have hedges on 24/7, but I am well versed in knowing topping/bottoming formations and when they appear then hedge open profits by selling Indexes and hedge them if market continues higher. You should have a protective stop on short future, so take the loss and keep the long call option on ES till you recover the loss on Index. On long term futures trading, been selling indexes/hedged nearly 3 years, finally paid off. Studying risk management once was dull for me, and now it is 99% of my time and very interesting. It is a balancing act of getting others to pay for the insurances, but keeping an open mind, can be done.
You and several other professional traders on ET suggested to us that hedging with index is a lower cost way of hedging vs long puts. It is on my to do list sir. However, I don't think @Sweet Bobby is hedging a large portfolio, he is generating consistent profit selling naked puts. To buy low cost insurance against an occasional black swan, he puts on his proprietary 0.6 spread. I have my doubts but apparently it works very well for him. It is also on my to do list.
I don't understand your comments. Risks 4:1 is acceptable as long as the probability supports. Short naked put has a risk much higher but high probability of making a profit? On the surface, the strategy appears quite sound and reasonable? Most of the time income is generated by short puts, the hedge is to cover an occasional black swan like this past Feb-Mar. Of course I am just an amateur retail, new to options. Would you mind explain your points? Thanks.
No, sorry, other than to say a simple long backspread and vert combo would improve the RR markedly and from inception. And that's after 15 seconds. I won't be involved in this loon's idiotic structures. Buy a deep OTM condor... structure it over this idiot's range of strikes. You'll see how easy it is to improve on what he's holding.
Here's a simple long condor normed to his max-loss. $28. 8x debit good for $155K terminal PNL on the table.
Apparently dorky destriero has blocked me from seeing his posts, but I can see that he posted something on my thread. I'm sure his comment was not kind towards me. Would someone please let him know if he's got something to say, he can say it to my face. Thanks! Sweet B