Side note here, it is not mathematically possible to have both long gamma and positive theta at the same time. Can't happen. They have a direct inverse relationship to each other. Also my position has no vega exposure at the beginning only after a big move.
a stock at 30 with IV 50 all the months. Dec 30 call â10 at 2.00 Jan 25 call +12 at 5.80 Jan 35 call+12 at 1 March 30 call â7 t 3.70 Stock â395 at 30. Thats what i had in mind looks like your strategy, at least it has the same characteristics i think. Do this wont work in real life, doing this trade in the longterm, your lose will be your commission costs, my opinion, where is the edge, you must be speculating on something happening/not happening in the future with volatility or stock movement. now, maverick, what was your strategy, tell me? im curious.
go long a volatility 80 month and short a volatily 140 month, and make that one theta neutral, you will see you end up with a shipload of gamma!!!! isnt that funny?
A long (short) wrangle is long (short) both a ratio call spread and a ratio put spread. For example, puts might be struck at 90 and 100 with calls struck at 100 and 110.
e.g. S 2 100 L 1 105 L 1 95 [butterfly-calls or puts] + L 110 call L 90 put result: depending on prices paid (big IF) theta pos or neutral, eg. if it stays around 100 you make money. HUGE move you make money on the long call or put, covering loss on the butterfly short move in either direction loses money.
No, there is a difference between gamma and vega. I know you think that when you see vol at 140 on the front month that its representing volatility but it does not behave in the same manner as vega. It behaves like neg gamma. It wastes away with each passing day. Vega does not do this. Gamma and theta are the opposite of each other. If you are long gamma you are short theta and if you are short gamma, then you are long theta. However being short premium is very similar to being short vega so I can see how people get confused by that.
imagine the hypothetical optionprices where the november is trading at vol 100 and the december at vol 25. ok, you will never see it, it is exagerated to make something clear. (the nov would be even more expensive then the dec, with same strikes....of course impossible) but if you buy here then december at vol 25 and you sell november at vol 100, and making that all gamma neutral, you will have a big pos. theta. why? because the nov gamma is more expensive than the dec. gamma. only risk is here, that probably the dec vega will come down when december has passed. ( not with this extreme example, but when the front month is at 120 and the second at 100, i would guess that after the front month expiration, the second one will trade at 90, so you lose on your vega, which you also could see as a theta kind of thing coming off.)