On Thu, 20 May 2010 19:51:18 -0500, "mcatolico"
<mcatolico@mindspring.com> wrote:
>mc- there are many, many ways to trade delta neutral. Using stock is just
>one common way where other Greeks are basically eliminated. Using long and
>short options to manage the deltas and then using vega is a next step. I
>have no idea how often it was truly delta neutral but, to keep in line with
>the initial negative delta bias, I think I effectively always kept the
>position relatively the same regarding a slight negative delta bias. I also
>adjusted vega - which was the point of the trade - based on what the implied
>volatility was doing. So if you'll look back I think you'll see that I 1)
>adjusted the deltas to stay relatively short about 25-50 deltas but did so
>by either buying or selling net vega based on the change in IV.
>
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><...>
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>>If I were to try it myself, certainly paper money for the first
>>few months, I would sell a small amount of ATM premium every day using
>>the same play each time, perhaps a single IC or IB and do the
>>necessary flattening and buying the now OTM shorts during expiration
>>week. Have you tried or considered such a semi-mechanical approach?
>>
>>mc- no and I wouldn't necessarily recommend it unless you have infinite
>>funds available. what you are suggesting is essentially a monte carlo
>>approach - which works in theory as long as markets are frictionless (not)
>>and you have unlimited capital (check no again even if you are warren
>>buffett).
>>
>Uggh. That means I understood what you were doing even less that I
>realized. I thought you were selling premium daily, but in a much
>more irregular way, often making directionaL bets while doing it.
>
>
>mc - this wasn't necessarily the intent though it might have either looked
>that way or worked out that way. Basically I 1) adjusted the deltas to keep
>the position relatively constant, 2) made the adjustment by either buying or
>selling vega, 3) incorporated a "sell local, buy remote" discipline until
>expiration week and 4) scalped little profits here and there as the market
>permitted. It's obviously not a deterministic way to trade as there are many
>changing variables and conditions to juggle. Hopefully it wasn't too
>confusing or complicated.
Then it would have been extremely enlightening if you had posted the
complete details of these computations to explain your exact thought
process in producing a particular trade. Maybe not for all, but just
a few of the trades so that we would get the idea. Have you ever read
a book on chess where a master player discusses the possible plays at
a particular position to explain why a certain one was chosen? I
know that now, most of the data you used may not be available but I
hope you keep this suggestion in mind for next time. An example of
where I was shaking my head in wonder: you had been selling a small
amount of premium at the ATM strike up to 5/12 but suddenly, 15 145
calls were sold. That particular mystery sticks in my mind but there
were plenty of others. Did you read my post about how one may go
about flattening part of a position? I indicated how one could could
construct an unlimited number of trades that would all serve to
flatten the same portion of an expiration graph. But I could not
explain how the particular one you used was chosen.
I do understand how you trade, much better than previously, but not
enough yet to do it myself. Thanks for the time and effort you put in
for us.
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Hey, thanks for the information. your posts are informative and useful.
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