Delta Neutral Trading

[ducati998]

Robertral,
I would have to disagree, or possibly I'm not explaining myself clearly.

Your def of shadow gamm is not tech correct......shadow gamma takse into account a move on the vol surface when a move in the underlying moves, so in affect its not the change in delta wrt to vol (dDELTA/dVOL is not shadow gamma).......

Shadow gamma, to my mind refers to the change in gamma with regard to implied volatility. That is to say the implied volatility is lower than you would expect.
One method would used to avoid unpleasant surprises or poorly balanced hedges, would be to calculate upside gamma, and downside gamma with the implied volatility, and then again with the expected future volatility. The second "gamma" becomes an expected scenario with the no change-in-volatility scenario.

Does that bring us onto the same page?
Cheers d998

 

[Profitaker]

When any option IV changes then do does it's Delta / Gamma / Theta / and Vega. Whether this phenomena is formally called "Shadow" or not I don't know. I just know the effect is small, and not normally worth considering.

Now, will someone PLEASE tell me how I can position for Delta Neutral and Gamma Neutral AND make a profit !

 

[ducati998]

Profitaker,

Now, will someone PLEASE tell me how I can position for Delta Neutral and Gamma Neutral AND make a profit !

To do so you would need an opinion on the probability of a direction, due to either a Technical or Fundamental approach.
You then calculate upside gamma, and downside gamma.

The position can be hedged with a lower hedge ratio than the delta calls for if the downside gamma is smaller than the upside gamma.

The lower downside gamma allows additional profits if the stock price increases without any additional risk of loss.

When any option IV changes then do does it's Delta / Gamma / Theta / and Vega. Whether this phenomena is formally called "Shadow" or not I don't know. I just know the effect is small, and not normally worth considering.

Amen, more trouble than its worth.

cheers d998

 

[Robertral]

you think vol is gonna go up....you an ATM straddle or strange and when the underlying moves just buy/sell enough delta (unerlying) so that you are delta neutral.....so here you trading volatility, you want IV to increase from where you purcahsed it....

make sense????

 

[Profitaker]

Robertal

Thanks and yes, it makes sense - but that strategy is known as Gamma scalping. I think perhaps we are talking cross purposes.

 

[Robertral]

Robertal

Thanks and yes, it makes sense - but that strategy is known as Gamma scalping. I think perhaps we are talking cross purposes.

You are asking about being delta neutral./..that was an example of a delta neutral trade!!!!!

 

[Profitaker]

You are asking about being delta neutral./..that was an example of a delta neutral trade!!!!!

Not quite. I was asking about Delta Neutral and simaltaneously being Gamma Neutral AND making a profit. You implied this was possible, some posts ago. I think I must have misunderstood you ?

 

[Windlesham1]

Cottle's coming to town-see www. Optiontradersclub.com -these people are Optionetics 'graduates'

 

[bulldozer]

Windle,
They are also fanatics on American style options.


bull

 

[belinea03]

Windle,
They are also fanatics on American style options.

bull

Bull,

Fanatics; I wouldn't go that far. The guys like American Options because of their liquidity, tighter bid/ask sprd, lower commission rate, volatility of the underlying, ...

Ahh! I just realised ... you meant FANTASTIC on American style options. Cheers

 

[bulldozer]

Bel,
If the American style Options are fantastic?, why then has Liffe removed them from the footsie 100 index? The truth of the matter was, because they were not as fantastic as the euro-style!
dont take my word for it ask Liffe.

bull

 

[beeryboy]

Bulldozer,

He told you why they were so fantastic in the previous post, so read it!!

American options have advantages over EU style, and EU have advantages over American, depending on whether or not you are writing.

 

[bulldozer]

Beery,
I have read it.

So why did LIFFE closed down the American style in the Footsie index?

 

[beeryboy]

The whole point of european style options was for instutional investors who write against their portfolios, and therefore didn't want that protection to be taken from them pre assignment. Therefore you find that most index options have european style options, and these are obviously preferred.

As a writer you always should be taking more premium when writing american style and therefore are being 'paid' for the risk of being assigned early.

Therefore depending on your reason for trading, one or the other is preferable.

As to why Liffe no longer do American style FTSE options. it's probably because the people who traded it most preferred EU style options as they're probably institutions.

Anyway let's move on with the topic.

George Fontanills of optionetics fame is a big fan of delta neutral trading, anyone read his book?

 

[bulldozer]

Beery,

If you dont like my posts? Dont read them! just ignor them!

The truth about American style options is, they are not as good as Eu style for many many reasons. If you had been doing options for more than 2 yrs you would know what I'm talking about.

Your quote below:
"Anyway let's move on with the topic, I can see from previous threads that you quite like to drag people into a nitty-gritty silly argument."
===================================================================
"My nitti-gritty silly arguments" Has saved people from making mistakes/loses . I have recieved many PM of thanx on my advice and comments.

Please do me a favour dont write to me or ask me any questions in the future on this forum or other forums. I hope i have made myself clear. Also dont follow my tips mentioned on other forums.

Happy trading
bull

 

[bulldozer]

"The whole point of european style options was for instutional investors who write against their portfolios, and therefore didn't want that protection to be taken from them pre assignment. Therefore you find that most index options have european style options, and these are obviously preferred.

As a writer you always should be taking more premium when writing american style and therefore are being 'paid' for the risk of being assigned early."
====================================================================

SO YOU THINK BEING "PAID" THE EXTRA 1-3 TICKS IS WELL WORTH THE GAMBLE?

The American Brokers prefer you to do US style because it brings them in MORE commissions every time there is assignments.

I've just saved you 1-2 of education here friend!! Is this "nitti-gritti too"?

Please let me ask you a question here?

If you had 20-50 contracts on a "Strangle" position and one leg goes ITM and gets assigned and you dont have any stock what happens now? and to make matters worse you are on holiday at your villa in Barbados on a one month holliday and also on the beach with some friends and no room to keep a m-phone in your swim-costume. What will your broker do?

So you think i should do US style for the extra 1-3 and sacrifice my holidays/life and stay home monitoring the "Strangle". Does Options trading RULE my life or My life RULE Option trading??


BULL

 

[beeryboy]

Do what you want mate, and don't assume everyone here is a novice, some of us have a lot of experience, and have been doing this all of our working lives, and therefore really do what we're talking about.

You asked why you would use american style, it was answered, you asked why the american ftse were abandoned, I gave you a logical explanation.

As for your question regarding the strangle, you should have given that some thought before jetting off to Barbados!

Thanks

 

[bulldozer]

Beery,

I do have positions open when I'm away on holidays. without the risk of assigments or closed out because position has gone ITM with still time left to xpiry.

You may well be an xperienced trader in options with many yrs behind you, so at least you wont need any help from people like myself.

bull
Plan the trade and then trade the PLAN !!!! then go off on holiday's and enjoy life.

 

[Effkay]

Bull.....dare I ask....the REAL explanation please?

 

[bulldozer]

FK,
Please read my last few posts to you on this forum! You seem to have a short memory.

bull