One of the most popular posts I’ve written is “The Bucking Gamma Bull,” in which I said: Think of your deltas as a mechanical bull, and your gammas as the rate and intensity at which the bull throws you around. The ride starts off quietly, but as time goes on the bull gets increasingly difficult to ride, and eventually you’re likely to be thrown. That’s exactly what happens during an expiration week in which the underlying…
Wednesday, August 12, 2009
It seems these days that the entire world is gasping at, of all things, minor twitches in out-month VIX futures. Earlier this week, Bloomberg’s strength ebbed and I caught them as, overcome, they whisper’d, “VIX Signals S&P 500 Swoon as September Approaches.” Like any financial headline that calls to mind men in breeches and whooping cough, this one should be regarded with skepticism. In the first place, VIX futures are signaling no such thing: even if the VIX popped up…
Thursday, April 30, 2009
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Member K.S. poses some very good questions: Having read both parts on your comments about the best time to trade iron condors [Ed: here and here], I wanted to ask if you ever decide to do fewer condors at a time when you expect a strong move in one direction? I know you did last fall when worried about a decline but what about a rally? this market’s momentum is quite strong — an interesting battle between that…
Tuesday, March 24, 2009
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A reader asked us recently about our preference for closing out option spreads prior to expiration. To review, we usually close out any positions that are short gamma at least a few days – and often up to a week – before they expire, since the exponential increase in gamma near expiration makes those positions more difficult to manage. The question was about the how the performance of our strategy would have been affected had we held all positions…
Thursday, February 19, 2009
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Reader Peter T. writes in with a very good question: Then are several places on the site where you mention that you prefer to let the probabilities play out and not adjust condors. I calculated the expectation of the latest IWM trade based on the probabilities. I did some minor rounding to make it easier to read. There is a 65% probability of making $50 which comes to $32. There is a 35% probability of…
Wednesday, November 25, 2009
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