While there is obviously vol-edge it is at the expense of a large gamma position. The upside is that there is virtually no gamma in the direction of the call... the puts are of no consequence (other than -stickiness/steepening slope), and the call is so deep that it has no gamma, only delta, and it's a one-lot risk. Sure they get beat on a rapid rise in vol and gap under the strike. That's why it's critical to keep a normalized premium-history on a running 30-day OTC pitchfork and be selective via your prem "mining". It doesn't abrogate timing, but give you a skew-figure in premium and the rules are reasonably robust. 30-day OTC ATM straddle (use a blended tenor; plot a regression) 30-day OTC PF premium " ... " It's a bit of grunt-work, but you can build a dbase and arrive at a nice plot of skew-vol in premium. It's as much a timing tool as a position to book.
I would cover the SPX Jun PF on any break below 1320 on a closing basis. I will talk more next week about offset strategies.
Swimming a bit in your terminology, so need some help here. In short you are selling the straddle break-even strike and buying the straddle. As a result, you would probably be slightly long vega and short skew (I have not modeled these). Couple questions: Is the idea that disregarding the delta consideration it is a 1xN that is nearly premium neutral? Is the delta consideration such that the position is market neutral assuming fixed strike vol dynamics?
Yes, but 1-strike out from the B/E. Buying the straddle? No to what follows... Yes to fixed-strike if I understand what you're asking. You're short everything.
Plot the ATM vols across expirations (weeklies -> monthlies) and use some CS/interpolative technique to arrive at a 30-day vol figure. Strikes I'll let sle speak for himself Yes, simply one less skew-premium in the overwrite, but better ATM (risk-strike) dynamics. Better to be in the overwrite on a strike touch, provided the PF numbers warrant ANY position.
it would be nice if you guys didn't abbreviate so much... B/O calculations... etc... of course ATM at the money. etc is easy.. but you guys abbreviate all the more complex terminology! its hard to understand... we need some kind of legend.. its slang or traders lingo... i'm new to trading options about a year and a half. i understand spreading, delta hedging, synthetics, all the typical terminology and even then i don't understand half of the abbreviations you guys post!