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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,022 / 5,727
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Selling Options on Futures?

Old October 17th, 2015, 05:56 PM   #5061 (permalink)
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ron99 View Post
How does that compare to a year ago? Or several years ago?

Unfortunately I don't have access to historical OI data. I can't see the advantage of buying Puts that far OTM and so far out in the future


Although this article suggests put buying is peaking

Black swan risk rises to highest level ever

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Old October 17th, 2015, 06:02 PM   #5062 (permalink)
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This is what a return would look like if you had bought 850 days out, the 500 Put on Aug 17. It cost $150 and gave back a return max of $350

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Old October 17th, 2015, 06:06 PM   #5063 (permalink)
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The 100 Put gave back a strange curve of peaking for only 1 day which was several days after the crash. It didn't give much protection but only cost $7.5

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Old October 17th, 2015, 06:57 PM   #5064 (permalink)
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Chubbly View Post
Unfortunately I don't have access to historical OI data. I can't see the advantage of buying Puts that far OTM and so far out in the future


Although this article suggests put buying is peaking

Black swan risk rises to highest level ever

The chart in the article says SKEW index was extremely high on 10/16/98. The next 8 months the S&P 500 went up 33%! That high SKEW was at the bottom of a 150 drop.

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Old October 17th, 2015, 09:05 PM   #5065 (permalink)
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ron99 View Post
The chart in the article says SKEW index was extremely high on 10/16/98. The next 8 months the S&P 500 went up 33%! That high SKEW was at the bottom of a 150 drop.

Back in 1994, during that memorable Fed tightening cycle, every time the Fed tightened, the market priced in a greater probability of more and faster tightening. Chairman Greenspan referred to the Eurodollar futures market as "A blind man looking into the mirror."

Similarly, I do not think looking at Skew index will help you systematically avoid risk and make money for similar reasons -- namely, it is self-referential. At the risk of articulating an Epistemology, any market price that is set by market participants cannot correctly discount the probabilities of something that isn't correctly discounted. I know that sounds like a typo, but it isn't. It's the nature of arbitrage-free pricing.

To say that "high skew means cut back exposure" is way too simplistic and it is what gives rise to the high skew in the first place. It's similar to market participants who adjust exposure based solely on VaR -- they take more risk when things "look" safe and reduce risk when things "look" dangerous -- with the blessing of academics and statisticians and other wonks. In contrast, many successful investors do the exact opposite: they reduce exposure when things look safe and increase exposure when things look dangerous.

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Old October 18th, 2015, 05:05 AM   #5066 (permalink)
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Similarly, I do not think looking at Skew index will help you systematically avoid risk and make money for similar reasons -- namely, it is self-referential. At the risk of articulating an Epistemology, any market price that is set by market participants cannot correctly discount the probabilities of something that isn't correctly discounted. I know that sounds like a typo, but it isn't. It's the nature of arbitrage-free pricing.

@tigertrader

I've never study the composition of VIX, but I have always wanted to ask this question: wouldn't VIX be catagorised as 'self-referential' as per your paragraph I have quoted.

To my simple mind it is a completely 'virtual' measure ie there are no hard assets (like oil, or shares) that determine it's value. In fact the VIX value is just the summation of all the participants views about volatility - hence self-referential.

Or maybe I am completely off track and VIX is actually compiled/calculated some other way.

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Old October 18th, 2015, 11:29 AM   #5067 (permalink)
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steve2222 View Post
@tigertrader

I've never study the composition of VIX, but I have always wanted to ask this question: wouldn't VIX be catagorised as 'self-referential' as per your paragraph I have quoted.

To my simple mind it is a completely 'virtual' measure ie there are no hard assets (like oil, or shares) that determine it's value. In fact the VIX value is just the summation of all the participants views about volatility - hence self-referential.

Or maybe I am completely off track and VIX is actually compiled/calculated some other way.

you're right in the sense that the vix weights near-the-money options more heavily than out-of-money options. . because options skews almost always imply more downside volatility for stocks than upside volatility, when the market declines it tends to bring more “high volatility” strikes into play and so part of the vix increase in a down market is simply mechanical. the market is full of these feedback loops where there is a non-linear relationship between cause and effect. any point on the loop is both an effect of the previous cause, and a cause of the next effect. soros contends that the stock market itself is such a self-referential system, and is the basis of his theory of reflexivity.

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Old October 18th, 2015, 03:39 PM   #5068 (permalink)
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Unfortunately I don't have access to historical OI data. I can't see the advantage of buying Puts that far OTM and so far out in the future


Although this article suggests put buying is peaking

Black swan risk rises to highest level ever

The media and market guru's are consistently wrong.

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Old October 18th, 2015, 03:43 PM   #5069 (permalink)
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?

Ron99 may I ask approximately what is the ratio of (Vega/Theta) (on average) when you open positions?

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Old October 18th, 2015, 04:53 PM   #5070 (permalink)
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The media and market guru's are consistently wrong.

I agree with you. I just tossed that out for some discussion

CNBC and MarketWatch are the 2 worst websites for constant doom and gloom headlines. I try to restrict my viewing of them to just what the numbers are today on the markets

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