Hi,you are operating under the assumption that most traders continuously delta hedge.. I would guess that most traders sell 85-95 percent spot put,light some candles and say a little prayer...
That explains why their P&L sucks. Your typical deity is not options-savvy; all that "thou shalt/shalt not" crap is is obviously way too binary. Might work for day-traders, but for derivatives? Shyeah. I mean, think about it. That "man made in his image" stuff - is that a clue, or what? You need a deity that can process multiple sensory inputs as well as send coordinated control signals in lots of directions at the same time, a CNS that's organized around multivariate analysis... Or, at the very least... You following the logic here??? Candles. Duuude. Unless they're black ones arranged in pentacles, that's just fundamentally wrong.
how can you out delta hedge the machines? They have almost 0 transaction costs or are paid hefty rebates and also have speed advantage
Trade the S&P options vs futures..... Sell Vol 3+ months out if and when you deem it rich... If rebates or transaction costs are a concern,you are in the wrong trade
I like selling vertical call spreads or vertical put spreads. anything between 30-70 days depending on the market and premium. I have experimented with selling diagonals but found out that for my specific situation/time etc. picking a don the market is not going to and using vertical for protection works best. At rare times I will do ration spreads when volatility is extremely high, like buying a gold 1600 call and selling 1 1650 calls if I can get credit..... This is just personal / general preferences i am sharing.
^ Reading a simple trade related post like this is a breath of fresh air. Sometimes all the talk of vomma, volatility surfaces, kurtosis, microstructure, forward implied forecast vol, synthetic this, natural that, actual realised implied triple-legged high-winged broken-nosed skew etc, makes for a heavy read. I trade a lot of credit spreads. When the SPX hit 3020, I sold Oct 3075-3100 calls. I'm also doing diagonals, as they allow me to fine tune my theta/vega. Do you mean "Selling 2 1650 calls"? Otherwise, this is just a debit spread.
"If rebates or transaction costs are a concern,you are in the wrong trade" ...Funny, I'd say if rebates and transaction costs aren't a concern to you, you are in the wrong trade.
Oh, heck yeah! A close friend of Cap'n Slappy's and I used to hang out in a USENET group, and she turned me onto it in the early days. Besides, after working Ren Faire for a couple of years and singing sea chanteys as one of The Bilge Rats in St. Augustine (sung in the key of "ARRRR", of course), my friends would disown me if I dared to miss it! "Avast, ye scurvy scalawags! Shiver me timbers if I don't masthead a dozen o'ye - where's my grog?" And may the sauce be with you, too!