Which leg is the alpha leg?

Discussion in 'Options' started by sle, Nov 13, 2011.

  1. sle


    The "overtrading" thread got me thinking on an interesting question:

    When establishing an option spread (e.g. a calendar), do you think of one leg as the alpha leg (the money-maker) and the other one is a hedge? For example, if you are a seller of gamma to buy vega (in a root-time vega flat manner), do you think of this trade as "protected short gamma"?
  2. Yes. Often but not always.

    In that case I will do the alpha leg first.

    The same if I think I have an arb, I will always do the mispriced side first, as that is the likeliest to disappear or to have never really been there in the first place.
  3. Not I... But then I don't do things like this a lot.
  4. mikeenday

    mikeenday Guest

    when you think of spread, you already lose.

    the key to trade any vehicle is to trade directional, if you can't read direction, nothing will work in the long run.

  5. sle


    You're right, we're all morons. There is still room for you in the other thread next to bwolinsky. Are you as much of an established trader as he is?
  6. mikeenday

    mikeenday Guest

    this is my best advice for free.

    take it or leave it. I couldn't care less.

  7. I dunno what to say... I am all choked up.
  8. The leg that's making money is the alpha leg, and the other one(s) are totally beta :p (alpha, beta as in -male, in case you didn't get the joke).

    I stare them the fuck down until they reduce in loss or at least stand still relative to the alpha leg, which grows humongous, LIKE A BOSS!

    My loyalty switches like a bitch to whichever is being alpha right now. Weird psychological games without any quantitative meaning, but profitable on the whole, so I don't stop them. :D
  9. sle


    do you throw an omega leg in for completeness of the pack? :cool:
  10. ammo


    the alpha leg is the one with the biggest teeth,as a trader the risk is your worry,profit is easy,hanging on to it comes from reducing mistakes,think macro,trade the micro around it
    #10     Nov 14, 2011