You answered it yourself 🙂
Adjustment cost is way too high for bnf. Sometimes bnf does exceed nifty in vol crush, but nifty overall is more consistent.

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: Why triple straddle has no real benefit.

A triple straddle is essentially an ATM Straddle & one or two step away straddle on either side. The position is almost neutral strategy just like any other neutral straddle or strangle.

1/

We can also view the position as an ATM straddle, a strangle & inverted strangle.

For example

Nifty: 14700

Triple straddle: 14600,14700,14800

Another view:

14700 straddle
14800-14600: strangle
14600-14800: Inverted strangle

2/

So the real question is what is the advantage of an inverted strangle over it's otm counterpart?

The answer is none.

They both have same premiums/theta. Only that slippages will be high in inverted strangle when we do the required adjustments plus liquidity issue.

3/

So isn't it better that instead of a triple straddle, we can just do ATM Straddle & 2* OTM strangle.

So in the above eg. the position will be

14700 ATM straddle
2* 14800-14600 otm strangle.

Same premium received, similar range just that there's no nuisance of ITM options.

4/

The question arises:

Why trade in an ATM straddle & 2* OTM Strangles? Why over-complicate?

Options are in itself a complicated instrument. Wouldn't it be better to stick to one straddle or a strangle & adjust accordingly?

Lesser the strikes, more there will be clarity.

5/

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/

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/

FINDING EDGE IN OPTIONS

24/08/15: Nifty gap down 250 points & another 250 after that. Previous few months return gone, but since I'm quick to take my losses, was saved from ruin. Before that my only edge in option selling was adjustments & my forever edge of following PA. (1/n)

I soon realised that theta decay with sound adjustments is not an edge, which i earlier thought was & which gave me good returns over the years. After that i went deeper in understanding volatility behaviour, how/where it manifests & all the discrepancies in option chain. (2/n)

With finding edge in logistics i mean how to keep the greeks in check, SL in place & optimum ways of adjustments with minimum slippages. So the main aim here is to write theta without following vol behaviour & having any actual knowledge of what's going on in the markets. (3/n)

A dedicated trader can learn all this in few years & it is something which is 'obvious' to become successful. But majority can't reach this level, as this also requires consistent hustle in live markets. All the seminar/webinar business teaches you till this level only.(4/n)

If you get passed this level though, the real work starts, when you have to find your real edge. This can't be taught in a webinar. It needs serious introspection of your trading skills, psychology & strategies in use, which ultimately allow you to book excellent profits. (5/n)

(Thread) Why do I own individual stocks?

Thesis:

1. The digitalization of our world is 10% complete.
2. This megatrend will continue for at least another decade.
3. If you enjoy spending your free time on individual stocks, then the potential for outsized returns is possible.

What is my approach?

There are two parts to my portfolio.

- 40% in Vanguard All-World ETF. This is on autopilot w/ regular contributions.
- 60% in what I consider to be high growth stocks

I keep a balance by adding cash. No shuffling around unless it gets too out of whack.

The latter is the interesting part.

I invest in companies that can

1. successfully disrupt an industry with new business models $TTD $SQ $PTON $TDOC

2. further enable the digital transformation with their services and infrastructure $ZS $HUBS $TWLO $CRWD

I intend to hold my shares indefinitely and allow my investments to compound over time.

I don’t believe that it is possible to time the market. Markets go up and down. I hold on knowing that quality businesses tend to bounce back.

The list of reasons to sell is always long.

If you have full conviction in your holdings, then no single piece of “infotainment” should make you change your mind.

Ignore it + people who make predictions about the economy.

Price + Open Interest (OI) + Volume = Deadly Combo

There are many tools for Open Interest. Options Decoder from @TrueData2 is one of the simple yet powerful tools on options and OI.

Below are the 10 Powerful Features of Options Decoder

Thread 🧵🧵

(1/N)

#1 - PE CE Difference

This feature combines the OI of call options and put options and plots against each other.

At one glance, we can know what big players are doing!

(If they are selling more CE means, they are bearish on the underlying instrument)

(2/N)

#2 - Advance/Decline

This feature displays all the F&O stocks in one place.

In one click, we can see the stocks in any order (like an increase in price, increase in OI, or decrease in volume, etc).

A highly useful feature for options traders!

(3/N)

#3 - Open High

This feature displays all the strike prices that have an open high (or open low) for the selected instrument.

If many CE strikes show "Open Low", then the market is bullish!

(4/N)

#4 - IV Price-OI Chart

This feature plots CE and PE vs. Open Interest (OI) for the ATM strike price.

Always Remember:

CE Long Build Up + PE Short Build Up = BULLISH

PE Long Build Up + CE Short Build Up = BEARISH

CE Short Build Up + PE Short Build Up = SIDEWAYS

(5/N)

A former CIA math genius built a quantitative trading fund that earned more than $100 BILLION for investors.

At 66% return/yr, his track record destroys that of Warren Buffet, George Soros, Carl Icahn, and every investor who ever lived.

The Smartest Billionaire in Finance:

1/28
If you'd have put $100 into Jim Simons' Medallion Fund in 1988, it would be $400M+ today.

By contrast,

$100 in the S&P 500 in 1988, would be $2,000 in 2022. (roughly)

Let that sink in.

2/28
Jim Simons's Medallion fund has had unreasonably high annual returns of 66% across 30 years.

For comparison, Buffet clocked in at about 20%/yr.

Many funds don't make that in a lifetime.

3/28
Even during the financial crisis of 2008, it made a net return of 82.38%.

They make so much money for their investors that they charge 44% in management fees.

The industry standard is 20%.

4/28
It uses math calculations to decide the bulk of its trades, & none of the market trends apply to how it performs.

It wins by finding order in chaos.

The fund is managed by Renaissance Technologies, the parent company founded by the mathematical genius Jim Simons.