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"The Doctor", whosoever he may be, is undoubtedly very experienced in the theory and understanding of options, but the following statement he made, is curious:
"Events don't occur frequently ..... by definition."
As traders know, events may be scheduled or unscheduled. The former are fairly frequent and, the main ones for the bonds, at the times I mentioned, while the latter are as he has stated. But make no mistake the scheduled events are most important and while some people try and trade them - as per the discussion we have been having, with options - others make sure they are not in the market at that time and trade the effect. I believe the latter to be safer and better all round - and bearing in mind the frequency, form a major part of day trading the bonds, successfully.
My interest is to trade the bonds, of course, not to promote the concept of trading options...
Bill Eykyn
----- Original Message -----
From: "The Doctor" <droex@xxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxx>
Sent: Monday, December 11, 2000 4:01 PM
Subject: Re: AW: [RT] Re: Trading Events
> You all have evolved the concept of a pure volatility play into a much more
> complicated and expensive position than necessary. Any vol. play is a form of a
> backspread. Backspreads would be long future/stock and long put, long put and call
> combination, short straddle long two combos....(probably the cheapest backspread).
> Delta adjusting a backspread no longer makes it a pure directional play, but rather a
> vol. play. Buy 1000 shares and buy 10 50 delta puts is just an expense way to buy 10
> 50 delta calls unless you are going to adjust along the way. If you are going to
> adjust then the backspread is a vol. play and not a directional play.
>
> Consider selling a straddle and buying two OTM combos instead. The general tone of an
> experienced pro is not to focus on what I make if it works, but rather to focus on
> what I lose if it doesn't work. Events don't occur frequently ..... by definition.
> So the challenge becomes how not to bleed to death waiting for the event. If you look
> at event you could retire from...... backspreads will almost always make you the most
> money for dollar at risk. You want trades with very High Gamma and little or no Theta
> and you are all creating very expensive variations that could bleed you to death
> waiting.
>
> Daniel Goncharoff wrote:
>
> > I thought Mike's point was exactly what he wrote, no more no less:
> >
> > To replicate 10 calls plus 10 puts at the same strike, you need 10 futures plus 20
> > puts (or short 10 futures plus 20 calls)
> >
> > Delta is a bad way to analyze a straddle, because the net delta of a straddle is
> > zero, yet there is real risk in the position.
> >
> > Regards
> > DanG
> >
> > Ira Tunik wrote:
> >
> > > Is the point that you are trying to make that at extremes of price movement the
> > > straddle will have a delta value of 1000, not 500 like the 10 by 5 position?
> > > In that case you would be correct.
> > >
> > > MikeSuesserott@xxxxxxxxxxx wrote:
> > >
> > > > Robert,
> > > >
> > > > though I don't consider myself a guru of anything, I do trade options
> > > > professionally, and I have seen this misconception come up several times on
> > > > this list. To clarify once again: suppose you consider a long straddle
> > > > consisting of 10 calls and 10 puts. To make for an *equivalent* position,
> > > > you would need to buy 20 calls and sell 10 futures contracts - not 10 and 5!
> > > > Just do the math, and you'll see for yourself.
> > > >
> > > > Thus, being long 20 option contracts in both cases, you have exactly the
> > > > same Vegas (sensitivities to volatility changes) in the central areas of
> > > > both positions. Even the Thetas (sensitivities to time decay) are virtually
> > > > the same.
> > > >
> > > > Differences arise in the follow-up strategies, of course. Orders in the
> > > > underlying are usually easier to handle due to better liquidity, and the
> > > > bid/ask spread, as a rule, will be tighter. On the other hand, margin for
> > > > the underlying is often a multiple of what you would pay for the options, so
> > > > if you want to hold the position for some time this would have to be taken
> > > > into consideration, too. This is especially true for equities, where the
> > > > money outlay can be a real drain on your capital available for trading.
> > > >
> > > > Regards,
> > > >
> > > > Michael Suesserott
> > > >
> > > > -----Ursprungliche Nachricht-----
> > > > Von: Robert Hodge [mailto:r-hodge@xxxxxxxxxxxxxxx]
> > > > Gesendet: Sunday, December 10, 2000 21:56
> > > > An: realtraders@xxxxxxxxxxx
> > > > Betreff: RE: [RT] Re: Trading Events
> > > >
> > > > Perhaps a cheaper way is to buy either the put or the call and take an equal
> > > > and opposite position in the relevant futures contract (eg buy a call and
> > > > short the future). I think this would be less sensitive to any (likely) fall
> > > > in implied vols after the tension is released by the news coming out while
> > > > still having the same fundamental characteristics as a straddle.
> > > >
> > > > Perhaps an options guru can correct me though :)
> > > >
> > > > Regards,
> > > >
> > > > Robert
> > > >
> > > >
> > > > To unsubscribe from this group, send an email to:
> > > > realtraders-unsubscribe@xxxxxxxxxxx
> > >
> > >
> > > To unsubscribe from this group, send an email to:
> > > realtraders-unsubscribe@xxxxxxxxxxx
> >
> >
> > To unsubscribe from this group, send an email to:
> > realtraders-unsubscribe@xxxxxxxxxxx
>
>
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