GoSeigen wrote:GoSeigen wrote:GoSeigen wrote:
Having closed most of the put legs on my short straddles I started the week very heavily short (mostly Jun) calls with strikes all the way down to 2800. Today's falls are welcome as the Jun contracts will rapidly lose value and I can close them out or let them expire next Friday. 2825 or lower next Friday would be ideal...
Opened a long Dec straddle today as the vol curve inverted.
GS
Turns out 2825 was a fantasy. S&P opened at 3161 at expiration today so most of my short calls were in the money. I decided to roll them into short index futures given the high level of the S&P. That might be premature but I am elsewhere leveraged long UK and international stocks so happy to start hedging a bit. This is a directional call, the first time I've felt comfortable about it for some time. Depending what happens I may trade short straddles again. VIX is still pretty high.
GS
Wrote Jul S&P strangles today. I still can't call the direction here. Implied volatility remains very high. I'm long UK stocks, short US futures so don't really mind which way the market moves.
With a good downward move I'll look to close any Jul short calls, write puts or buy Mar 2021 straddles.
If an upward move will close Jul puts or write calls, maybe take profit on some long stock positions.
If sideways, will just get a steady stream of premium from the options, most positions are in profit now.
GS
Grateful if you could explain your thinking here (and maybe some basic principles about option trading - I have traded in them many years ago, but it's always useful to get views on underlying principles.)
My understanding is that unlike most other stock market investments, options are simply a bet against other people in the market, and have no intrinsic value in themselves, but there are 3 ways to make (or lose!) money from them (and of course, various combinations of these factors).
A) Getting the direction right. So buying calls and then seeing the market go up.
B) Getting the volatility right, when others underestimate it. So buying calls and puts, and then seeing lots of wild see-sawing in the market, so making money on both.
C) Getting the timing right. So buying a short-dated call just before the market moves up.
If I've understood you right, you think the options market is underestimating the volatility of markets, so pretty much all calls/puts are underpriced - is that correct?
Also, unlike straightforward betting, is there something about options markets where perhaps big institutions are affecting the price in such a way that there are clear opportunities for small investors? (Defining "small investors" as <£100,000 trades!).
The kind of example I'm thinking of is where big investors are staying more or less fully invested, but hedging their options by buying puts.