Completely different risk profile. If you're short puts and the market goes down you suffer a double whammy on both your deltas and your vegas....
I didn't mean to imply there's only one reason people are buying puts. I'm just saying there's a big additional upside pressure on puts from that...
I think you're raising the question of the most sensible way to hedge, and wondering if the way it is commonly done - with OTM options - really...
Very good observation (about the mean-reverting nature of volatility). Another problem with the VIX futures is that there's nothing that ties...
I'm glad you got it beep - thanks for taking the time and trouble to read carefully and work through it. I was beginning to think I'd gone a...
My point is that this would work IF there was no skew, IF every strike traded at the same IV. Because of the potential for that play, the lower...
Never tried it that way. But it might work that way in an option contract with really tight penny spreads. Try it and let us know!
A conversion is when you buy puts and sell calls at the same strike (and buy the underlying). This is buying and selling two strikes far apart -...
What exactly would you like to isolate? Vegas? Gammas? What is your expected scenario? One way to isolate volatility is with calendar...
I promised in another thread to post what in my opinion is the number 1 most direct and precise factor driving the skew in S&P500 options. Here...
Careful Newguy - the art of maintaining an option position delta and premium neutral is a subject near and dear to my heart - one I lived by and...
I mentioned as an aside how we were trading T-bond options in 1984, and somebody asked me for a specific scenario. But please don't misunderstand...
No, if the bonds drop you make money too. This is in no way a directional play. If I get a chance over the weekend I'll work up a detailed example.
Well of COURSE the skew is related to supply and demand. That's ALL the skew is. It is a living, breathing indicator of the supply/demand for...
If the S&P is at 1200, you can hedge your stock portfolio by buying 1100 puts, or by selling 1300 calls. Either way, it will contribute to the...
There are 45 days remaining until option expiration. Futures are at 104-16/32. I buy 100 of the 104 calls at a volatility of 8%. I sell enough...
In retrospect, it was indeed a license to print money. But at the time it was all so new that we all did it very tentatively - wondering what we...
Skews in general predate the '87 crash. I don't know what the index option skews looked like before then, but it's hard to believe that every...
Imagine you work in a widget factory. Your co-worker Hal comes to you and says "You know that order for 100 widgets we're supposed to deliver in...
Here are the only candidates I can come up with: 1. The stock becomes unavailable to borrow and you get unceremoniously closed out of your...
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