Yeah, I'm trying to get a feel for the markets (and make a buck while I'm at it) going into some of these interviews. I'll prolly have to start off as some kind of analyst calculating PnL for the big boys and stuff of that sort. But I think it would help if I knew how to really understand the nonlinearities with higher order greeks if I incorporate them into my own (paper and/or real) trades. Btw opt789, you worked at a big firm too before/currently? Like Spin said do most option traders specialize in a few securities? Thanks for the response!
Every one in this forum,whether they know it or not, trades the level IV especially if they are a nondirectional trader(read:sideways markets)using calendars, flies, or IC's your comments imply you have been primarily a d-i-r-e-c-t-i-o-n-a-l trader so i.e you trade based on whether you expect stock/ETF/Index to make a fairly large move up or down. yet you are new at this, probably have never had to adjust a trade(staying on top of the deltas, amongst other things)so you probably don't know the greeks as well as you think you do. and probably have a lot more to learn about risk management than you think finding stocks/Indexes to trade directionally is obviously a different filter than the ones going sideways I personally used Finviz as one stock/ETF screener though there are certainly others. you can of course learn to trade both directionally and nondirectionally but that may not be what your focus is right now good luck
I wouldnât say âmostâ option traders do any one thing, but in my experience they like to have a feel for the underlying and the accompanying option market. ES options have little in common with wheat options, and SPY trades differently than AAPL. Guys tend to focus on an area, like highly liquid, deep markets or low liquidity and wide spreads, or indices vs. individual stocks, etc. It is hard to be an expert in everything. They also usually have either a slight bias or heavy bias as to whether they like being long gamma/vega, or short. There are guys who will never be net short options (whether or not they are short gamma/vega) and guys who are comfortable being naked short. Another thing that applies to all traders everywhere, is that it is different just trading your own money vs. trading OPM. IVtrader mentioned it, but I donât view trading options and trading implied volatility as two things, they are the same thing to me no matter what type of trade I am doing. Not that it matters, but I have been a broker, clerk, market maker, upstairs firm guy, and hedge fund guy but never with a big firm, I like the small firms.
Agreed! Any resources other than the regular big books like Natenberg, Taleb, etc? Or do I actually need to work at a trading floor to learn these? Thanks!
that's one way. quite a few people will also get also ex marketmakers to coach them. I can suggest two and no I don't get any financial incentives to do so. contact me at jimr_77024@yahoo.com1234 if you want(note the munged address). put "deltahedge" in the subject line
I am not an all kind hats guy. I just focus on the simple strategy of buy option either call or put, all OTM options, not ITM options. becuase I am a small account single handed trader, I need the leverage, the larger the better. I switched to option trading from future, the main reason is the appealing leverage. it is awesome. if used it wisely, easily double or triple even ten fold the account in one or two trades! the first step toward successful trading is: never listen to any opinion do not be indulged in technical analysis focus on inbalance between buyers and sellers (what they try to do? they want to break through those price levels or stay there? what those major players are thinking? )
I'm sorry, my mistake: the right word is "vertical", which I mean figures with the same maturity It's very hard to predict IV and R(ealized)V better than the IV term structure does, but the vertical shift in IVTS during crysis means that the market is far away from being efficient. «Next to cones» means just the current level, but in my opinion it's always better to log(IV) ~ log(HV) via OLS linear regression in order to see if IV has always been far above (or below, why not?) HV and how much. I suggest to study the Greeks on E. Haug «The complete guide to option pricing formulas»; those are strikes which, ceteris paribus, DGammaDVol and DVegaDVol are good to you out of. Ornstein-Uhlenbeck process is just mean reverting with parameters estimated on data; you said right: it could be seen like ARMA process, in my opinion there are no strong differences... you just need an estimate of the mean reverting speed of the IVTS's slope, no need to be so "quant" Correct, because of autocorrelation of volatility you will always start losing some money but that's your bet: changes in volatility and IVTS slope as it's always been in the past.
I think you may have missed a few words there but did you mean those are strikes which, ceteris paribus, DGammaDVol and DVegaDVol are good to you out of the rest of the strikes? So basically strikes which dont have Vomma and Zomma priced into them as much compared to the rest of the strikes? SICK! That sinks in. E.G Haug's book has always been one I've wanted to read. Haven't really gotten around to it. I guess my biggest learning will have to center around how to wrap my head around the non-linear effects of all these greeks. Question though: How does one go about obtaining data for the term structure? IB surely doesnt have that feature (even its skew-analytics suck compared to ThinkOrSwim). Before I knew about TOS, I had to manually scrap data from sites like yahoo finance and such. Took 10-20 seconds to generate a skew curve that was 15 minutes delayed (I know I have zero patience). Or maybe you just use some brokerage software that I simply cannot afford at the moment? There's a bloomberg terminal at school which has it all. But then I realized that it's almost an hour delayed.... Thanks Cren1! Babu
Couldn't agree more! But there are academic studies delving into some of it's merits. For example Support and Resistance could be seen as a momentary regime change with prices exhibiting high mean reversion. Andrew Lo- the MIT professor has a rather lengthy paper on Technical Analysis. But yes- chart patterns are usually a lazy endeavour. I did try it out in my late teens early 20s. Now I've decided to enter the age of reason...lol... wish me luck!
3 of the more profitable options traders I know of ne has 100 million under management and one trades $500,000 in his individual account both use technical analysis alot. its not everything but it certainly has utility