The Beauty of Options - Portfolio Insurance at a Discount

"The trades are negative theta, but the options models are incorrect on the negative theta calculations on far out of the money options."

The theta bill on your far-out puts doesn't take into account that the put strike skew steepens over time. So your long winger puts move incrementally higher in IV all else being equal. The theta reading on your long puts is theoretically correct, but negated by the upward drift in their IVs due to the vol smile gradually steepening over time.

 

It is not portfolio insurance.

 

Correct, this is an overall income strategy that sends Sweet Bobby’s kids to college when the market crashes!

 

You got paid only when the market crashes, otherwise, no cigar, no tuitions for kids?

 

Thanks for your thorough explanation.
For the call ratios that you described, is it also good to partially delta hedge them with futures?

 

Thanks for openly sharing. I myself am a beginner, that's why I did not directly comment on your strategy. I wanted people with more experience to break down your approach and verify that your logic flows. Thanks for sharing man. Anyway , you are the reason this productive thread started and we got the opportunity to ask our questions as we attempt to dissect your structure.

 

Yeah, the guy is clueless.

 

So, he does bleed theta (as anticipated by the model)on those near expiry long puts, yet the IV steepening (elevation of IV on the OTM puts) partially helps him?

 

Sometimes being stupid and lucky isn't a bad way to go through life.

 

He's short the diagonal. I don't want to waste time on this idiot, but yeah, he's wrong.