Delta Neutral Trading
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SELLING OTM IS THE THE BEST STRATEGY! [ AND WITH LESS COMMISSION] NAME A BETTER ONE?
Let's hear how a "DELTA NEUTRAL" is BETTER.
And before you make a comment on my comments perhaps its better you read all the other guy's [beeryboy] comments first.
FK, Have a nice day.
Bull
Let's hear how a "DELTA NEUTRAL" is BETTER.
And before you make a comment on my comments perhaps its better you read all the other guy's [beeryboy] comments first.
FK, Have a nice day.
Bull
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Selling OTM will eventually kill you, there is no doubt about it. You can't sell OTM and go 'to hell with the vega'.
The point is that when you sell OTM, you take on a premium that is proportional to your risk, ignore this risk and soon enough mate your career will be over.
Do yourself a favour read Fooled by Randomness by Taleb (if you can understand it, it's quite intellectual)
Doesn't matter how long you've been trading for mate, chance is a strange thing.
The point is that when you sell OTM, you take on a premium that is proportional to your risk, ignore this risk and soon enough mate your career will be over.
Do yourself a favour read Fooled by Randomness by Taleb (if you can understand it, it's quite intellectual)
Doesn't matter how long you've been trading for mate, chance is a strange thing.
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Effkay said:
Hi Effkay
You can maintain a position already put on, but how do you initiate one without buying options?
I did think about the reverse, selling options, but my conclusion (of course I can be wrong!) was that is not possible. My reasoning was that in a delta neutral strategy, when the markets move up or down, the winning side has to profit more than the losing side.
For example if I bought some puts and went long some futures, and achieved a net 0 delta at initiation, if the market went up, the futures will gain more than the puts loses and thus I profit.
When the market goes down, the puts will gain in value faster than the loses in the futures, and again I gain.
If the market remained motionless, I lose the premium I paid for the puts.
If on the other hand I were to sell options, my max profit will only be the premium I collected, it cannot go any higher. Thus it will not cover the losses from the opposite leg of the trade.
Or am I mistaken?
HL
Profitaker
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Effkay
Exactly !
You can open short options to Delta Neutral, as well as long, and the underlying doesn’t have to be ATM. For example;
Underlying 5040
Short 8 x ESX 5025 Calls delta +0.60. -8 x +0.6 = position delta of -4.8
Short 12 x ESX 5025 Puts delta -0.40. -12 x -0.4 = position delta of +4.8
Position Delta = 0
The problem / challenge with any Delta Neutral strategy is maintaining it. Option Delta is not constant, it changes as a function of it’s Gamma. In the above example, if the underlying moved up by (say) 10 points then the Calls Delta may increase to 0.66 (an increase of 0.06) whilst the Puts Delta decreased to 0.36 ( a decrease of 0.04). This would then change the position delta to;
Calls -8 x +0.66 = -5.28
Puts -12 x – 0.36 = +4.32
Position Delta = -0.96
There are a number of ways to bring the spread back to (approximately) Delta Neutral
1) Sell 3 more Puts to Open
2) Buy 1 Call to close
3) Buy 1 Future to open
If you short options to Delta Neutral, you’ll find yourself re-balancing by buying when the underlying moves up and selling when the underlying moves down, trend following in other words. If you go long Options to open Delta Neutral the reverse is the case, i.e. Buying when the underlying goes down, selling when the underlying goes up, counter-trend trading in other words.
Hope this helps.
Exactly !
You can open short options to Delta Neutral, as well as long, and the underlying doesn’t have to be ATM. For example;
Underlying 5040
Short 8 x ESX 5025 Calls delta +0.60. -8 x +0.6 = position delta of -4.8
Short 12 x ESX 5025 Puts delta -0.40. -12 x -0.4 = position delta of +4.8
Position Delta = 0
The problem / challenge with any Delta Neutral strategy is maintaining it. Option Delta is not constant, it changes as a function of it’s Gamma. In the above example, if the underlying moved up by (say) 10 points then the Calls Delta may increase to 0.66 (an increase of 0.06) whilst the Puts Delta decreased to 0.36 ( a decrease of 0.04). This would then change the position delta to;
Calls -8 x +0.66 = -5.28
Puts -12 x – 0.36 = +4.32
Position Delta = -0.96
There are a number of ways to bring the spread back to (approximately) Delta Neutral
1) Sell 3 more Puts to Open
2) Buy 1 Call to close
3) Buy 1 Future to open
If you short options to Delta Neutral, you’ll find yourself re-balancing by buying when the underlying moves up and selling when the underlying moves down, trend following in other words. If you go long Options to open Delta Neutral the reverse is the case, i.e. Buying when the underlying goes down, selling when the underlying goes up, counter-trend trading in other words.
Hope this helps.
Beeryboy quote:
"The point is that when you sell OTM, you take on a premium that is proportional to your risk, ignore this risk and soon enough mate your career will be over."
=======================================================================
Beery,
Selling OTM Options is the only way your gona make profits in Options!!! with plan "B" as your hedge. Please dont ask me what plan b is? But I can tell you plan B does exist. [ in the same way as you said, you are hedged if your position was assigned against you. I also make sure it does not come to that cause I'm on EU style which also makes it easier]
Your never gona make profits in the long run if you sell ITM or ATM.
Buying Options for profits is a gamble, as it is told the majority of Options finish worthless.
Doing "Delta Nrtl" position is to costly [commision] and it needs constant monitoring and the profits is 50/50 win/lose. and in most cases the profits are too small even if you get it right.
Only the writers make profit in the long run. I think/believe most book writers will confirm this.
Bull
Happy trading
Ps: One last suggestion before i go/dissapear. Put on a "real" price "Delta Ntrl trade" on the board, so the viewers can see and understand all the legs/costs and potential profits.
"The point is that when you sell OTM, you take on a premium that is proportional to your risk, ignore this risk and soon enough mate your career will be over."
=======================================================================
Beery,
Selling OTM Options is the only way your gona make profits in Options!!! with plan "B" as your hedge. Please dont ask me what plan b is? But I can tell you plan B does exist. [ in the same way as you said, you are hedged if your position was assigned against you. I also make sure it does not come to that cause I'm on EU style which also makes it easier]
Your never gona make profits in the long run if you sell ITM or ATM.
Buying Options for profits is a gamble, as it is told the majority of Options finish worthless.
Doing "Delta Nrtl" position is to costly [commision] and it needs constant monitoring and the profits is 50/50 win/lose. and in most cases the profits are too small even if you get it right.
Only the writers make profit in the long run. I think/believe most book writers will confirm this.
Bull
Happy trading
Ps: One last suggestion before i go/dissapear. Put on a "real" price "Delta Ntrl trade" on the board, so the viewers can see and understand all the legs/costs and potential profits.
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delta neutral or so called playing vols is like eating a scorpion , it may taste exotic at first but very often the sting at the end will kill you.
are you seriously thinking that you can outsmart the market on a worthwhile , consistent basis by consistenly predicting volatilty , limited to a time frame , and find well priced premiums ?
you may do it a few times and then the trend will reverse on you . and you BF'ed .
over the long run , this scenario produces a Reward: risk profile much LESS than on vanillas .
people who buy this idea are bookworm , full time workers turned suckers .
are you seriously thinking that you can outsmart the market on a worthwhile , consistent basis by consistenly predicting volatilty , limited to a time frame , and find well priced premiums ?
you may do it a few times and then the trend will reverse on you . and you BF'ed .
over the long run , this scenario produces a Reward: risk profile much LESS than on vanillas .
people who buy this idea are bookworm , full time workers turned suckers .
well hlpsg,
every person should find what their are best at and most comfortable with , this will vary from person to person. it's a cliche and a pain in the butt, but hey it's true .
when making choice of what instument to trade the following should be bourne in mind:
1) time frame , do I prefer trades with a short duration or a longer one ? ie ) day trades v a few days v long term investing.
2) costs : what sort of cost in the way of mainly mairgins , comms and other trading fees am I willing to stomach . I like the lowest possible , despite the bare min. service I may get .others must make their own chioce .
3) High Reward : Risk : this one should be universal . although , from what I have read , it seems there are some who prefer unusual types of trading platforms over net profitability ( the ility is the important bit ).
what I mean by high R:R is that the trades and the overall performance should give you the highest possible return for the least amount of $ risked.
again , sounds obvious but in practice a lot of people forget this or sacrifice this as a price of seduction to being fashionable .
4) trading edge : of course you need an edge in the market , how you get this is the $6m question .
who is going to post on net for free a system that works consistently over a period of time ?
in dreams maybe . so this has to be discovered by oneself , the hard work as some say .
this applies to ANY instrument whether plain old stocks or exotic swaptions. an instrument won't give you an automatic edge just because it sounds funky.
I asked the question because I wanted to know the answer .
I haven't watched the options market for a few years , but I doubt if it has changed fundamentally.
so it normally goes like this . you want to buy straddles , buying both the call and the put of the same month over a certain price range of the underlying . you will also need the options pricing to be as cheap as possible .
whether you look to buy the straddles when the options are cheap ( when the u'lying is flat ) or when they are not ( when the u'lying volatiles a bit ) . you still have to make a judgement call as to market direction.
if you do the former , then options may be cheap , but over the time frame the u'lying may not move . result : you lose .
do the latter and your options are now expensive , since everyone has jumped on board as the u'lying has moved . yes the u/lying may indeed move within your timeframe , and your options prices will rise BUT will it be enough to make you a winner or a big winner .
you see , you still have to make that call.
My particular choices would be stocks and index futures , but that's just me .
every person should find what their are best at and most comfortable with , this will vary from person to person. it's a cliche and a pain in the butt, but hey it's true .
when making choice of what instument to trade the following should be bourne in mind:
1) time frame , do I prefer trades with a short duration or a longer one ? ie ) day trades v a few days v long term investing.
2) costs : what sort of cost in the way of mainly mairgins , comms and other trading fees am I willing to stomach . I like the lowest possible , despite the bare min. service I may get .others must make their own chioce .
3) High Reward : Risk : this one should be universal . although , from what I have read , it seems there are some who prefer unusual types of trading platforms over net profitability ( the ility is the important bit ).
what I mean by high R:R is that the trades and the overall performance should give you the highest possible return for the least amount of $ risked.
again , sounds obvious but in practice a lot of people forget this or sacrifice this as a price of seduction to being fashionable .
4) trading edge : of course you need an edge in the market , how you get this is the $6m question .
who is going to post on net for free a system that works consistently over a period of time ?
in dreams maybe . so this has to be discovered by oneself , the hard work as some say .
this applies to ANY instrument whether plain old stocks or exotic swaptions. an instrument won't give you an automatic edge just because it sounds funky.
I asked the question because I wanted to know the answer .
I haven't watched the options market for a few years , but I doubt if it has changed fundamentally.
so it normally goes like this . you want to buy straddles , buying both the call and the put of the same month over a certain price range of the underlying . you will also need the options pricing to be as cheap as possible .
whether you look to buy the straddles when the options are cheap ( when the u'lying is flat ) or when they are not ( when the u'lying volatiles a bit ) . you still have to make a judgement call as to market direction.
if you do the former , then options may be cheap , but over the time frame the u'lying may not move . result : you lose .
do the latter and your options are now expensive , since everyone has jumped on board as the u'lying has moved . yes the u/lying may indeed move within your timeframe , and your options prices will rise BUT will it be enough to make you a winner or a big winner .
you see , you still have to make that call.
My particular choices would be stocks and index futures , but that's just me .
Profitaker
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wisestguy
The only "truth" is that there are many, many strategies, but none of them are any better than each other - just different, and some more suitable in different market conditions than others. For example, short straddles are perfect when the underlying trades in a tight range. Long straddles are perfect when a sharp movement is expected, but direction not known. Short naked Puts are good when you're neutral to slightly bullish, ratio Call writes work well when you expect a slight easing before resuming upward trend. I could go on and on and on....
There is no"truth".
The only "truth" is that there are many, many strategies, but none of them are any better than each other - just different, and some more suitable in different market conditions than others. For example, short straddles are perfect when the underlying trades in a tight range. Long straddles are perfect when a sharp movement is expected, but direction not known. Short naked Puts are good when you're neutral to slightly bullish, ratio Call writes work well when you expect a slight easing before resuming upward trend. I could go on and on and on....
There is no"truth".
My thoughts on delta neutral trading:
An amazing idea, but not always possible.
You have to make a call in the markets, when trading futures, it's a choice of long, short, nothing.
Now options look attractive because your average futures trader thinks "ah I can make money regardless of market direction", problem is that you have to take on an opinion with regards to volatility or timescale.
So if you want to trade delta neutral that's fine, but you have to make a call on some other aspect, and more often than not, this turns out to be a call on volatility.
Just my thoughts
An amazing idea, but not always possible.
You have to make a call in the markets, when trading futures, it's a choice of long, short, nothing.
Now options look attractive because your average futures trader thinks "ah I can make money regardless of market direction", problem is that you have to take on an opinion with regards to volatility or timescale.
So if you want to trade delta neutral that's fine, but you have to make a call on some other aspect, and more often than not, this turns out to be a call on volatility.
Just my thoughts
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irishpaddypc
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berryboy
Can you show an example of a real price trade with all the possitions?
and also how it can be hedged incase the stock moves against you?
im a newbie please use easy-simple words.
Can you show an example of a real price trade with all the possitions?
and also how it can be hedged incase the stock moves against you?
im a newbie please use easy-simple words.
I tend not to post real life trades, as I don't like my position to be exposed, I am happy to answer any questions you may have, or look at any potential trades to tell you how I feel you would be positioned.
Bear in mind I am not a tutor in any sense of the word, nor am I am an advisor, secondly the speed of my response is not guranateed in any way.
I see you're a bulldozer fan over on TT.
Bear in mind I am not a tutor in any sense of the word, nor am I am an advisor, secondly the speed of my response is not guranateed in any way.
I see you're a bulldozer fan over on TT.
