-----Original Message-----
From: Ricky
>mc- of course many people trade this way. It's called delta neutral
trading.
It certainly doesn't look like the kind of trading where one keeps
buying and selling shares of stock in order to keep the position delta
neutral. How often during the GS trade was the delta of the position
equal to zero at the money?
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.
<...>
>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.
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