Tag Archive | "theta"

When short gamma trading is your only hope

Tuesday, April 23, 2013


From early March through last Friday, there were really only a few ways to make any profits in the S&P 500, and looking at which strategies have been working gives us a good sense for the character of this market. First, let’s take a look at price action over this period. SPX went basically nowhere: Fig. 1. S&P 500 Index, March 6 – April 18. Source: CBOE Now, trading strategies can be classified according to the source of their risks/returns, meaning…

The Bucking Gamma Bull

Wednesday, January 7, 2009

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We’ve mentioned before that our preference is to close out short option positions before the dynamics of expiration week have a chance to kick in.  In a nutshell, while it’s true that theta declines more quickly as expiration looms, tempting option shorts to hold on as long as possible, it is also true that gamma rises more quickly closer to expiration, as shown below. There is no one right answer about how to trade expiration.  But if…

Mean Reversion after Expiration

Monday, December 1, 2008

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Traders tend to pay a lot of attention to expiration week, and for good reason. There are also some post-expiration phenomena worth noticing: in particular, unsophisticated options sellers often allow their front-month contracts to expire before selling the next series. There’s an apocryphal story about a big SPX condor seller who always used to wait until the Monday morning after expiration to route his single monster trade for the month. But we’ll leave discussion of the disadvantages of that…

Range Bound Markets

Thursday, August 28, 2008

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Quick, somebody sell Tim Knight some option premium! There’s something wrong with the picture at left, but nothing wrong with these markets if you’ve been a premium seller for the past couple weeks. On the other hand, even deft swing traders are getting whiplashed around.  Everyone is betting on a breakout or breakdown after the holiday, and they’re probably right.  Until then, it pays to get paid to sit on your hands. To be fair, the phenomenon pictured here is…

Market Neutral, Not Delta Neutral

Tuesday, August 12, 2008


There are plenty of ways to put on option trades that have a neutral outlook: straddles, strangles, condors, etc.  Whereas stock and futures traders are limited to whatever price action the market gives you, options let you take a view on implied volatility (vega), the passage of time (theta), and the rate of change of the rate of change of the option per unit move in the underlying (gamma).  Okay, that last one isn’t so obvious, but the idea is…

A Better Way to Play With Materials (XLB)

Sunday, July 13, 2008


The Striking Price column in this weekend’s Barron’s features John Marshall from Goldman, who suggests an “opportunity to buy volatility” in the S&P Materials sector via the tracking ETF (XLB).  He makes the bearish case for XLB, arguing: 1) that the materials sector is particularly vulnerable to any slowdown in global growth, 2) that the ETF components include some less resilient names, and don’t feature the best of breed like POT and MOS, and 3) that hedge funds are…

8 Hedging Ideas for Iron Condors, Part 1

Saturday, April 26, 2008


What should you do when the underlying moves against an iron condor position you have open? (For example, if you’re a member, you may have noticed that one of our DIA trades for May expiration is looking threatened by the recent price action in the index.) Any time this situation arises, people will always write in to ask about how they can “adjust” or “fix” the trade if the market continues to be uncooperative. It’s an understandable impulse to want…

Morning Signals

Monday, April 7, 2008


Fun little graphic via the Times this morning showing the signals a NYMEX trader uses to basically print his own money (seriously, has there been any easier job since January 20, 2001 than walking into the NYMEX and loading up the boat on long oil contracts?). We’re getting our own signals from the markets this morning: S&P futures are up 11 points, and Dow futures are up 82.  So the bullish shift of the past two weeks is…


Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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