This is where I like to use put spreads. Doing it as a spread minimizes paying crazy vols outright as you're spreading one vs. the other (buying ATM or OTM and selling further OTM), and reduces your theta decay. You don't get the vega pop of outright puts, but if your alternative is shorting delta 1, then it's not much of a loss. Then…
This is where I like to use put spreads. Doing it as a spread minimizes paying crazy vols outright as you're spreading one vs. the other (buying ATM or OTM and selling further OTM), and reduces your theta decay. You don't get the vega pop of outright puts, but if your alternative is shorting delta 1, then it's not much of a loss. Then on the crazy rallies, your delta goes away making it a whole lot less painful. I don't trade the asset that shall not be named, but if I did trade it from the short side, I'd take a hard look at put spreads as a risk-managed way to do it. Just my 0.02.
That's great advice Kent. And it makes tons of sense because you are actually long the gamma at the upward strike, and selling the expensive down-and-out strike. This is a good strategy for this environment.
As for the asset that shall not be named, does shorting the ETF and futures outright and then adding short calls count as a hedge?
This is where I like to use put spreads. Doing it as a spread minimizes paying crazy vols outright as you're spreading one vs. the other (buying ATM or OTM and selling further OTM), and reduces your theta decay. You don't get the vega pop of outright puts, but if your alternative is shorting delta 1, then it's not much of a loss. Then on the crazy rallies, your delta goes away making it a whole lot less painful. I don't trade the asset that shall not be named, but if I did trade it from the short side, I'd take a hard look at put spreads as a risk-managed way to do it. Just my 0.02.
That's great advice Kent. And it makes tons of sense because you are actually long the gamma at the upward strike, and selling the expensive down-and-out strike. This is a good strategy for this environment.
As for the asset that shall not be named, does shorting the ETF and futures outright and then adding short calls count as a hedge?
A Texas hedge! :)