Volatility trading

poopie

poopie

New member
May 5, 2014
457
8
0
Hey all-

I'll start posting equity volatility ideas in this thread. I'll post real-time indications based upon NBBO mid-price, which generally corresponds to the fair-value on the position.

Some caveats. 1) I trade OTC interbank positions in varswaps, swaptions and 1st/2nd gen exotic options. So a lot of this stuff will be marked-to-market but not necessarily traded by me. I have strict self-dealing and COI clauses in my PM contract, but I am allowed to trade in my IRAs. Some will be traded, others not, and I won't specify which are taken (or not taken).

2) These trades will be marketable; meaning that I will post the mid-price on the complex position and a likely fill price based-upon microstructure. For example; XYZ asym fly is trading 30x35 debit. I will mark it to mid (32.50) plus an edge-loss figure that experience shows would be instantly filled. Always using screenshots in R/T.

I will keep a running PNL and peak to trough DD figure. I will assign a allocation % to each trade.

Constructive comments are great. Understand that I've moved literally millions of listed contracts over the last 20Y and probably know more about this shit than you do. I have advanced degrees in quant and physical sciences (topo, cosmology, LA, matrix theory) from top-5 schools.

Thanks. Enjoy. PM with questions. Please no "what is an option?" or "what is vola?"
 


subbed

Wolf-Wall-Street-Trailer.jpg
 
Let's go down Gru's list, shall we?

1) EMH. I respond to price-action. I don't make forward-looks for a living. I shorted the market a day before BABA went public. 2015 SPX. It was a public call. So yeah, we can discuss "market conditions" but generally I try to steer clear of retards and expressions of cognitive dissonance. I do trade vol into macro/event-driven (typically weather events) and CB actions (Draghi).

2) Trading strategies? I structure strikes vertically based upon vol-skew, smile and sticky-delta (Derman delta). These are tools. It's not terribly important to know why, but what price distribution I am looking for and under what frequency/duration.

3) Charts/Indicators/Technicals.... hahaha, no.

4) I am the largest non-commercial owner of ZFGN. My cost-basis is 17. Can't tell you more, buy it. That's the only company-specific color you will get. EMH again.

Honestly, I am amazed at how the near-impaired can so willfully throw money away. Not just Grunin, but any passive mkt participant. Well, especially Grunin.
 
This is a simple excel sheet I used to use when position trading vol in a single name. Skew edge in premium. This is typically what I'd view after receiving a vol-line (nominal vol) signal in a sector or micro-event.

rafqTr2.jpg
 
Madoff whistleblower.

My brother got their offering from Greenwich-Fairfield back in 2003. I was at his place for the 4th of July. I read it and I was amazed that a guy was making >12% PA with a split-strike conversion.

It's long a put at x, long stock at y, and short the call at z. A true conversion is a rate-arbitrage in stock in which the put and call strike are the same. There is risk when you use OTM strikes (split strike). The risk is equivalent to a vertical spread--a vertical is a synthetic split-strike conversion (collar).

Split-strike conversion:

Long XYZ at 100
Short XYZ call at 110 strike for $1.50
Long XYZ put at 90 strike for $1.00

Reduced, synthetically:

Long stock + short call = synthetic short 110 put at $11.50
Long 90 put from 1.00 remains

Fully reduced:

Short the 90/110 put vertical from 10.50 credit. The vertical has extrinsic value of $0.50.

A true conversion:

Long XYZ at $101
Short call at 100 strike for $3.00
Long put at 100 strike for $2.00

Short call and long put = synthetic short shares from $101 risk. Natural (shares) and synthetic net to zero exposure. The arbitrage involves "shorting" the synthetic for >$101. It's largely a function of nominal rates (LIBOR, etc). You're lending (short >$101) or borrowing (reversal bought <$101).

================================================================================================

Greenwich was explicitly stating that they (Madoff was not mentioned) were buying synthetic BULL call spreads. The entire scam was predicated on buying bull verticals.

So yeah, in hindsight it was an obvious scam for anyone with a basic understanding of vol-arbitrage. There was no way that anyone could avoid blowing-up buying bullish index verts into a market collapse. And WTF would you even involve the underlying shares when you can simply buy the 90/100 call spread or sell the 90/100 put spread?

The rationale was to avoid the inevitable questions regarding the lack of deep ITM options hitting the tape. They "traded" the SS-conversion as deep ITM options rarely trade. The SS involves OTM options which trade far more actively. So the 3-way trade costs more in commissions, but it may pass the smell test--the deep ITM vertical would not (no significant volume traded).

I had assumed that the synthetic verts were simply discount-arbitrage--Greenwich was buying deep ITM call spreads for pennies under FV on a haircut. As in shares trading at $100 and they're buying the six-month 80/90 synthetic bull vertical at $9.50. Sure, you're risking 20x your money, but all it has to do is expire above $90. Then add portfolio margin to lever it up.

In reality they were "trading" at the money, which would have resulted in massive losses at zero-leverage, and a debit balance if running a haircut.
 
poopie, you know there's not 1 guy in 1000 reading that who knows what the fuck you're talking about. so i have to ask why you're posting more of it?

its clearly not to inform... so is it simply to let people know you're an expert in something? if so, mission accomplished.

if not, i'm baffled by why you'd continue to post this stuff, with the name dropping and the laughable level of jargon.
 
poopie said:
Greenwich was explicitly stating that they (Madoff was not mentioned) were buying synthetic BULL call spreads. The entire scam was predicated on buying bull verticals.
Click to expand...

Bro.. Finally someone gets it!​

poopie said:
So yeah, in hindsight it was an obvious scam for anyone with a basic understanding of vol-arbitrage. There was no way that anyone could avoid blowing-up buying bullish index verts into a market collapse. And WTF would you even involve the underlying shares when you can simply buy the 90/100 call spread or sell the 90/100 put spread?
Click to expand...

Exactly! That's what I've been trying to explain to these simpletons!​

poopie said:
The rationale was to avoid the inevitable questions regarding the lack of deep ITM options hitting the tape. They "traded" the SS-conversion as deep ITM options rarely trade. The SS involves OTM options which trade far more actively. So the 3-way trade costs more in commissions, but it may pass the smell test--the deep ITM vertical would not (no significant volume traded).
Click to expand...

It's like that one time at band camp when I was trying to program compellingly matrix user friendly technologies within phosfluorescently coordinate 24/7 schemas. In the end I was able to empower viral users by targeting turn-key e-markets while synthesizing the wireless channels. When we started offering conveniently streamline accurate customer service, we knew it wasn't enough. To really round out the scheme my mates and I started selling dedicated private proxies, while offering reliable support for a competitive edge. Anyone with half a brain could see it was a complete scam!!​

poopie said:
I had assumed that the synthetic verts were simply discount-arbitrage--Greenwich was buying deep ITM call spreads for pennies under FV on a haircut. As in shares trading at $100 and they're buying the six-month 80/90 synthetic bull vertical at $9.50. Sure, you're risking 20x your money, but all it has to do is expire above $90. Then add portfolio margin to lever it up.
Click to expand...

0crrkHi.gif

poopie said:
In reality they were "trading" at the money, which would have resulted in massive losses at zero-leverage, and a debit balance if running a haircut.
Click to expand...

M4pi96i.gif

​
 
You must log in or register to reply here.
Top Bottom