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[QUOTE=PeterOhlson;376218
This is very crude obviously. *sigh* wish I had a database of all options on the S&P space, with IVs and all the greeks, where you could backtest by attaching automatic deltahedges to test profits of various structures through time, the structure being defined by some variables like % OTM, delta, theta/gamma and the backtest automatically opening the structure at the beginning of each new cycle. Because of my lack of Goldman Sachs like infrastructure I'm forced to use Excel and my brain along with the rest of us unwashed masses. Sucks /QUOTE]
It is easy to hedge the delta of a short far out of the money put. Say you have sold a naked put with a delta of 0.025,
then sell a call vertical with a delta close to 0.025. The call vertical reduces the risk to the downside, and has
reasonable risk to the upside. This also increases the maximum possible profit.
That's step one. Then what do you do when futures keep moving lower? Add more calls? And what do you do when the futures reverse and you have on a bunch of calls?
Show us an example using short naked NG calls the last 4 weeks.
From the charts you posted earlier it looks like this typically mean reverts. Is this mean reversion based on NG prices or overall supply or a certain time period?
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Price, Vol & Skew all spiking on the concern that we may not have enough gas in storage for the winter. If this is true the short squeeze hits March, hence why your seeing what you are in the March Calls. This is not a rare occurrence as you can see in the charts I posted.
If it's not true and we don't literally run out, which is again normally the case, then the March premium will disperse and March will probably trade equal to or at a discount to April. Of course we won't know whether that's the case for a while...
touched it briefly today, lets see if it breaks & holds above. hopefully not...though price at these levels appears to be reasonable value as per the EIA:
"The EIA also forecasts that gas prices will be higher than the year-ago level thanks to lower natural gas inventories and higher household heating demand."
/QUOTE]
