What to make of this strategy?

What's so juicy about that?

 

Perhaps youre right, I was just thinking about it in relation to my hypothetical 45 / 50 scenario before. An occasional 10% drop might not be the end considering you can make 3-5% month on this.

May I ask, what would you consider "juicy"?

Br Gustaf

 

I spent all afternoon Sunday reading every post on the "Trading Long Straddles" thread.

The best post was by a guy who said he spent fourteen years looking for a strategy he could put on anytime and turn the mkt into an ATM. Never found it.

It didn't take me long reading posts on this forum to figure out options are a tool to enhance your idea.

All the strategies work at times, but not all the time.

 

I like this post.

 

It's essentially a dirty short-dispersion trade. The dirtier you get the more alpha you generate.

 

And you can actually get 18% without leverage ?.

 

Cash-secured, sure. That's been the AAR for the last few years (2007....)

 

It reads as if it is an almost passive way to earn the 18%. Is that right or does it involve adjustments, discretion, timing, etc. ?.

I haven't looked closely at it yet, but it sounds like "arbing" a basket of stock options against a lower volatility index option. Is that the gist of it ?. Is there a catch?. (Of course there must be...).

 

It's a sector-trade and it's been a good market, generally. 2008 was the trough, but it earned 12% due to the index gamma. I am in no way praising or admonishing the method, but it works well for people who are looking for (sic) "income" trading.

You increase the gamma hedge (/vol) as you decrease duration. I have tooled with various index and vol hedging; long atm index puts + bull VXX (verts and short puts) to manage the vol-line and gamma.

Any index skew trade would have demolished it on the 2009-2011 bull market, but the Calmar on the "dirty dispersion" is far superior in a mixed market.

50% is invested passively and 50% is opportunistic so it's not easily replicable (or I would be dead-quiet). It's easily my largest chunk of OPM. It has got a lot of street appeal.

 

atticus:

"Sell otm puts on low-betas and use zero leverage. BLK has a buy-write fund, but you should do this yourself in shares. Pick a diverse group; many sectors, best in class. 100 shares notional exposure per ticker (1 put), no more than 4 tickers per sector. Go one strike otm and do not adjust. Buy some upside calls in VIX or bull vertical as a hedge on vol, or buy an atm index put for gamma. "

What do you do when you get assigned which happens alot if you go one strike otm?

Br Gustaf