It doesnt appear that you are running a vol book,so what brought this topic up?? Do you trade 3 vs 9/12 month calendars with the hope of systematically rolling for a credit?? Just curious..
I don't have systematic trades for calendars you mentioned. I mostly look at shorter-term calendars with weeklies and monthlies. No, I don't run a vol book but I still want to evaluate the impact of vol. The reason why I asked the questions was that I'd like to be able to stress test the calendars. It is more straightforward to stress with the underlying change (well maybe not so due to skew Delta). Stressing with a single vol clearly isn't accurate. The single Vega provided by ToS isn't well defined to me. I think I got what I was looking for in this discussion.
How do you fare with that? There are different Vol Regimes from what I can gather. Esp. when you consider the interest rate Regime pre 2009 and post. Do you distinguish between those or do you take hist. IV over a x time period and make a decision?
I test through every VIX regime since 2007, which may not be enough, but good enough for me. I also measure relationships between strikes (strike distances and related ratios) to determine how one combo (like ratio spread) may offset/hedge another combo (like back ratio), and how statistically when one combo loses money then the other becomes profitable, and to what extent. I also intuitively know that for example a 1/-3/2 fly is a combination of a ratio and back ratio, as well as I know that the length of the ratio I choose is proportional to volatility, so I put some stuff together intuitively. Then I further test my conclusions with basic B/S stress testing and measure how volatility changes would affect me. Others could evaluate all that just by looking at the greeks, but I wanted to show here how Vomma can be negative and still not be a problem due to Ultima (which affects Vomma). So it may be a good example how someone may miss something even looking at the greeks, while I can do a different and maybe more complete analysis differently. Finally, I’m not utilizing standard quant and MM techniques with delta hedging, but rather arriving at near 0 delta naturally, while also trading with risk unlike market makers. Most people here are concerned with greeks because they try to trade without risk. While I’m trading more statistically where the win/loss rates of trades matter more and can’t be measured with greeks (though in this case this is a longer term trade where greeks could be more useful if I wanted to stare at them). Also. my SPX positions i graphed here earlier, are somewhat experimental. I’m trading mainly options on single equities because SPX is so hard to “game”, while I’m playing with SPX to try to figure out how to make it more bullish while being better hedged. While I don’t expect large losses on this position anyway, maybe even a windfall during a crash. In the worst case it would be a reasonable loss while everything is on sale. So I’m not even trying to be perfectly accurate and worry about some regime I haven’t thought of (also, my SPX positions looked quite differently a few months ago as I was utilizing different more bullish setups, but then got out of those and decided to try something different)
Could you please explain the benefit of this intuition compared to, say, viewing it as a combination of bull and bear vertical spreads?
Not sure, but I guess it could be similar to benefits of being able to spot arbitrage opportunities by MMs and pro traders just from looking at the options chain vs using complex software, as recently discussed here: https://www.elitetrader.com/et/threads/find-the-edge.359908/page-4 In the past I did spend thousands of hours staring at the options chains, but without knowing what to look for, so I spotted different stuff than quants and MMs may spot, and I was even able to pull off some nice arb trades for couple months, with the opportunities later disappearing. But I still got some intuitive knowledge out of it that can be very useful and allows me to look at things differently than most people. This doesn’t mean that I’d know how to look at vertical spreads differently since I wouldn’t look at them. I’d only look at stuff that I think may be useful or can have an edge. I also like to convert stuff between puts and calls and shares, which may not discover edges but rather prove the lack of an edge. And I make mistakes too, at least until I have a chance to test some assumptions statistically via backtests.
Im keeping it simple... Put the IBM 7/23 - 7/30 140 Call Calendar on for .34 .. Earnings on Monday..May look at downside diags before earnings are released..