Delta Neutral Trading

[Profitaker]

yes , there is :

you still have to make a directional call one way or the other , which was the context of the original question.

With a Delta Neutral position you're not exposed to direction, in the sense that 5 points up will have the same Profit / Loss as 5 points down. Short premium or long - it doesn't matter. Yes, you're exposed to the magnitude of any direction (which maybe beneficial depending on whether you're long or short premium) but not direction itself.

Position gamma - well, that's different, but that's not what we're discussing, or is it ?

 

[wisestguy]

that's semantical pendantics . you make a decision on whether the market moves or not - that is STILL a call involving direction , yeah . it's only a question of how you want to frame that verbally .

re-read post #74 .

 

[beeryboy]

If you manage to stay delta neutral, you cannot be hurt by the direction of the underlying. IF you manage to stay delta neutral that is, the beauty is that in making the adjustments you probable make a profit!!

 

[wisestguy]

yes you can , this can happen :
-------------------------------------------

( from #74)

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.

beauty my a**e.

 

[Profitaker]

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.

Um, I don't think so. If you're long a straddle you don't care whether the underlying rises or falls, or at least you shouldn't. It only matters that the underlying moves by more than the amount of premium paid.

 

[wisestguy]

oh please .

why do we keep having these repeat conversations ad infinitum ?

if It only matters that the underlying moves by more than the amount of premium paid , then a movement on the underlying still bloody matters .

come on , I know what you are going to say next and I have a answer ready .

ambuuush . kuhkuhkuh.

 

[Profitaker]

...then a movement on the underlying still bloody matters .

Correct, it does, think we can agree there. And now that you've sorted your "movements" from a "direction", we can end this discussion on semantic pedantics.

 

[beeryboy]

The call you make is not on market direction and that's what attracts people, the truth is if you don't make a call on something then you can't profit, so by all means be delta neutral, but then make a call on volatility (amount of movement).

 

[irishpaddypc]

Beery boy as I said in my other post i am only a newbie. I am still only paper trading and i am a fan of everyone who posts i dont have a favourite as im still learning this stuff. Could anybody please give an example of 1 or 2 trades and please keep it in simple terms so i can understand fully. it doesnt have to be real prices. any help will be greatly appreciated

 

[beeryboy]

I didn't mean it in a bad way mate, I just wouldn't trust that guy, read back over this thread and you'll see what I mean.

What kind of trading are you interested in? (what is your general market experience?)

 

[wisestguy]

movement = direction , or 1 of 2 directions , so in the context they are 1 and the same.

so what ? you still have to make a call , the way you lot talk, implies it is a risk free strategy which is bull , nothing in the market is risk free.

and it's semanticAL pedantics .

 

[beeryboy]

As far as I know no one thinks that delta neutral = risk free, it means that you don't have to make a call on direction.

 

[wisestguy]

ah , but that's what a lot of people were implying .

don't fool me for 1 moment .

 

[Profitaker]

Beeryboy

I'd give up if I were you, I have - he ain't having any of it, as you can see ! Moving on....

Has anyone tried gamma scalping, i.e. long high gamma straddle (near expiry) and maintain delta neutral by counter-trend trading the futures. Strikes me that it ultimately comes down to what you have to pay in IV terms for the straddle, versus what the realised volatility turns out to be. Be interested to hear of any trials / experiences.

 

[hlpsg]

Beeryboy

I'd give up if I were you, I have - he ain't having any of it, as you can see ! Moving on....

Has anyone tried gamma scalping, i.e. long high gamma straddle (near expiry) and maintain delta neutral by counter-trend trading the futures. Strikes me that it ultimately comes down to what you have to pay in IV terms for the straddle, versus what the realised volatility turns out to be. Be interested to hear of any trials / experiences.

Profittaker,
Let me try to understand the above, you go long a straddle near expiry date when gamma is high (a tiny move in each direction will result in the deltas of the component call and put changing by a lot), so a little change in the underlying will result in enough profits to overcome the premiums of the options? Is this the basis for the above strategy?

 

[Profitaker]

hlpsg

Yes, exactly as you describe. You would adjust your futures position at a pre-determined delta and the higher the gamma on the straddle the more the delta will change for any given move in the underlying. Ideally you want to be whipsawed up and down, up and down, buying the dips and selling the tops and vice versa, throughout each day.

I once ran a program in Excel using randomly generated numbers and trading the above strategy. Over hundreds of trials it made a profit if the realised volatility was more than the bought IV and made a loss if the realised volatility was less than the bought IV. Which would be exactly as you'd expect if you think about it.

 

[wisestguy]

your reply reveals your motives

Beeryboy

I'd give up if I were you, I have - he ain't having any of it, as you can see ! Moving on....

Has anyone tried gamma scalping, i.e. long high gamma straddle (near expiry) and maintain delta neutral by counter-trend trading the futures. Strikes me that it ultimately comes down to what you have to pay in IV terms for the straddle, versus what the realised volatility turns out to be. Be interested to hear of any trials / experiences.

why the hell should you even care if I am " having it " or not ?

if you really are so convinced you have a good strategy , then why would you care what I or anyone thought about it , never mind alerting the world it .

sounds like you are trying unsuccessfully to convince yourself of it !

 

[wisestguy]

You are back to square 1

Profittaker,
Let me try to understand the above, you go long a straddle near expiry date when gamma is high (a tiny move in each direction will result in the deltas of the component call and put changing by a lot), so a little change in the underlying will result in enough profits to overcome the premiums of the options? Is this the basis for the above strategy?

You still have to contend with Reward to risk .

what's in making low % return cheap premium straddles , when in the long run you may not make enough to make it worth your while .

on each of these " clever " gamma trades , how much R:Risk cap can you make ? 10% maybe , how many can wins of these can you string together to make a strong return to risk , before you invariablely give a few back to the market?

like this you would be lucky to make 60/70 % Return on Risk cap. pa tops , assuming you don't lose , that is !

a lot of work for relatively small gains . hell , on any 1 futures trades wins, I count anything less than 100% return on cap . small !!

but that's what you get when you shell out a few grand for an " options sytem " from some smarmy american dude , who probably never traded himself !

 

[Profitaker]

wisestguy

You can expect a reply when you have something worthwhile to contribute.

 

[FetteredChinos]

i dont think i have ever seen a topic as fiery as Options..

everytime they get discussed on here a mini bunfight breaks out...


Ramon bloody Vega.