Tag Archive | "vega"

When short gamma trading is your only hope

Tuesday, April 23, 2013

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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…

Expiring Monthly Guest Contributors

Monday, May 30, 2011

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Expiring Monthly has published some great articles in recent months, many from guest contributors. In this post, I’d like to highlight some of those recent guest contributions. The May issue was published last week and is available now for subscribers – cf. my colleague Bill’s May recap. Chris McKhann (optionMONSTER) wrote a column in the January 2011 issue, “The Vega Calendar Trap,” on how the vega of a given calendar or diagonal spread can be deceiving, and…

Bonus Trade: SPY November Butterfly

Monday, November 8, 2010

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Our paid newsletter strategies are predicated on the expectation of mean-reversion (with risk-management rules for containing losses in trending markets)—in implied volatility as well as in price of the underlying. But when we find ourselves in a strong bullish trend, it's often desirable to both increase delta and decrease vega. One great way to do this is with butterflies...

Long Vega Plays for a Market Breakout

Friday, May 29, 2009

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As pictured below, equity indexes have been highly range-bound since the end of April.  That trading range has been between about 470 and 510 in the Russell 2000, and 865 and 930 in the S&P 500. I doubt that this range is likely to persist for much longer. Fans of technical analysis will note that SPX and RUT are caught in the narrow space between their respective 50- and 200-day moving averages: a break above or below either average…

Look Before You Buy LEAPS

Monday, March 23, 2009

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Long-term Equity Anticipation Securities (LEAPS) are a class of options with expiration dates longer than a year.  Their purpose is to allow investors who would otherwise hold shares of an underlying equity to buy an option instead, and thereby participate in expected price movement without tying up as much capital.  However, we caution investors against using LEAPS as stock substitutes without first taking volatility considerations into account. Let’s say you want to buy 1000 shares of Cisco Systems (CSCO).  At…

Calendars and Condors: Allocation and the Volatility Factor

Tuesday, November 11, 2008

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We often refer to the complementary nature of iron condors and calendar spreads, in that the former benefit from falling implied volatility, while the latter generally get a boost from rising IV. So does that mean you should balance out volatility risk by allocating as much capital to calendars each month as you do to iron condors? Unfortunately, it isn’t that simple. First, it’s important to think about where implied volatility might be headed, especially when it’s at one extreme…

Three Theses on Volatility

Wednesday, October 22, 2008

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Following up on our recent post about VIX futures, a reader asked: If you want to get short volatility, why not just sell some of those VIX futures here, or maybe a vertical spread of VIX options?  Why mess around with equity indexes at all? Good question.  The difference depends on what you mean by “volatility.”  VIX futures are a pure vega play, which is to say that they give you exposure to changes in implied volatility, but that’s…

Aggressive Idea

Wednesday, September 17, 2008

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Market Neutral, Not Delta Neutral

Tuesday, August 12, 2008

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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…

Option Strategies for Directionless Markets (Review)

Friday, July 25, 2008

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Option Strategies for Directionless Markets: Trading with Butterflies, Iron Butterflies, and Condors Anthony J. Saliba, with Joseph C. Corona and Karen E. Johnson (Bloomberg Press: 2008) When traders are first exposed to spreading strategies like butterflies and iron condors, one of the first questions they always ask us is, “Can you recommend a book that goes into these strategies in more detail?  Where can I learn more?”  We’ve had to reply that there aren’t really any books that discuss iron…

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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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