THREAD ON IRONFLY

These days the most preferred strategy for option sellers due to improved margins is IRONFLY. It's essentially a short straddle with long strangle. Long strangle acting as 'WINGS', which help in capping the unlimited risk associated with a short straddle.(1/n)

10 mistakes in my 14 years of trading as an option seller 🧵

1. Staying neutral all the time. Majority of the years i have been a neutral option seller. I now realise that having a little sense of direction would have given me an added advantage with better utilisation of capital & also leverage (till the time it was available).

2. Too much importance on adjustments. Initially like most of the new option sellers, i had this notion that i can perfect my adjustment skills for any market conditions. Ofcourse i was wrong. Market is supreme & we need to respect it at times.

3. Not giving importance to greeks. For initial 6 years i didn't even know the existence of greeks. Since i started using them, option selling has become rather less complicated on the contrary of what most people believe.

4. Having too much confidence on the certainty of theta decay. Enough is said about it already. Theta decay is not an edge.

A THREAD

Topic: HOW TO TRADE IN RISING PREMIUMS SCENARIO

Option sellers specially Straddle sellers feel that rising premiums give them excellent opportunity to make easy money. So what they are seeing is the theta aspect of options & ignoring the delta/gamma/vega forces.

1/

With rising premiums come high delta moves. There is a reason why premiums are all increasing up in the first place. High uncertainty & fear is what's controlling the markets during such times. So a volatile 200 point move in nifty is always on the cards.

2/

Adjusting during such delta moves involves high slippages. Such costs go in our system & are irrecoverable. So if the ATM straddle is around 400 & after 200 point downmove, the next straddle is at 450 & the loss is not just 50points but compounded much more.

3/

Also there are chances that there is no decay throughout the day. So a straddle seller has to take that heavy risk of carrying it forward & chances of gap openings are high during such times. If converted into Ironfly, then the cost of the wings is too expensive.

4/

Thus cutting down the initial credit significantly.

There will also be very few instances when premiums don't fall till expiry day. So with each delta move the cost of holding a straddle gets accumulated & pressure keeps mounting for the stubborn option sellers.

5/

AN ESSENTIAL THREAD ON OPTION ADJUSTMENTS

Adjustments can be done in variety of ways & depends totally at the discretion of the trader. To get a clear mind we need to know the following:

1) What to follow,
2) How to make the adjustment,
3) When to make the adjustment. (1/5)

1) We need a way to measure the imbalance created by a delta move in an option strategy. We can measure through premiums, distance from index or delta of greeks (i personally use delta). So basically whatever way of measure we use, both sides should be equal in it. (2/5)

2) Adjustment can either be done by selling extra quantity of profitable side, buying the quantity of losing side or shifting both the sides. I personally shift the sides because with extra quantities our Gamma gets imbalanced & the risk increases if market reverses. (3/5)

3) While the first 2pts are objective, when to make an adjustment is totally subjective. It can be fine tuned through experience. It also depends upon what strategy u are using. For a short strangle the adjustment required is faster than a ratio spread or an IC. (4/5)

Straddle/strangle require faster adjustments because they are more vulnerable to delta or IV spike. Any other strategies like ratio spreads, ironfly, butterfly have some bought option, which can negate the spikes for a while. So we need a defined system as to WHEN to adjust.(5/n)

Understanding HIGH & LOW VIX

VIX at 16: If you check today's IV behaviour, they were not spiking much even with decent delta move in BNF. The movement was subtle, giving some time to adjust. So someone having good adjustment mechanism can stay in the game longer.

1/

VIX at 20: The same delta move will be more fierce, coupled with rise in premiums. When premiums rise with movement, then the adjustment cost increases exponentially. The premiums can fall back at EOD, but the damage is done if caught in the spike.

2/

After talking to few traders, their backtest result was in favor of high VIX of 2020, rather than 2017-19. The key flaw in the backtest were the adjustments which are not easy to calculate. Combination of high theta & fixed SL during high VIX, the IV crush is cashed at EOD.

3/

Neutral option sellers who don't adjust & have fixed SL on a static straddle will not be able to benefit highly in low VIX. The straddle which moves away from ATM will increase no matter what. But if we keep on rolling our strikes, then we get good realisation of theta.

4/

I have made majority of my profits in option selling when VIX was at 13-15, mostly just relying on my adjustments. Since 2020 with high VIX, adjustments stopped working because of increase in the frequency of delta + IV spike combos & so had to shift to directional trading.

5/

3 December 2020 #MAGAanalysis #RedoTheElection

When You Catch A Thief

The sleeping giant of America sleeps no more. We have awakened. We're nothing more than the same Common Sense Americans we were in 1776. We're feisty. Independent and self-sufficient. Hard working.

Time once again to emphasize the differences between totalitarianism, authoritarianism, and fascism. They're often used as synonyms but they are different, although they do tend to lead to each other. Order one, and the other two are usually delivered soon enough.

Totalitarianism is best understood as the politicization of everything. Every facet of life is infused with political meaning... and subjected to political control. There is little room for privacy or individualism. Every word and deed is seen as a political action.

Totalitarianism does *not* require authoritarian government, although it usually leads to such. You can be totalitarian without having any real government power at all, enforcing your political will through mob actions and corporate power. Examples from recent history abound.

Totalitarianism is the easiest of the three deadly "isms" to slide into, because it can easily be disguised with claims of its good intentions. Totalitarians usually claim to be motivated by the Greater Good. They claim to represent the interests of sympathetic victims.

Totalitarians claim that society is unjust and must be corrected by force. Before they gain the power to become authoritarians, they often assert the right to use force outside of the law because the government is corrupt or serves the interests of their ideological enemies.

A statement about Stephanie Hayden.

In January I became aware that Ms Hayden (who monitors this account despite being blocked) had made a series of defamatory allegations about myself and my wife.

The allegations were made on Twitter, via Hayden’s account, and were widely retweeted.

The allegations were that as a result of her making a police complaint, (1) the police were seeking to urgently speak to me.

Furthermore (2) that police has spoken to me on 26/12/20 and offered some kind of “robust” advice about my conduct on and off line.

Finally (3) that police attended my home address in November, where my wife mislead them as to my whereabouts.

Hayden commented about this at length on Twitter, said that both and I am my wife had lied, and that I had even given a false address in Hampshire.

I said at the time all the allegations were false.

The police “complaint” was nothing more than Hayden making yet another vexatious complaint to the police, as Hayden routinely does.

The police did not speak to me on 26/12/20, as alleged, or at all.