Comment on Application of Option Greeks

Karthik Rangappa commented on 21 Aug 2014, 01:49 PM

Yup, costs and # trades are bound to go up. Elevated vols fetches you higher premium, agreed, but this is associated with elevated gamma levels.

As a rule of thumb, I’d personally prefer to keep option legs minimum, and also try to restrict layering up…for the simple reason that it gets too complex.

Anyway, if I were to trade short straddle (expecting the volatility to cool off) I would prefer to adjust the position with futures.

After I initiate a short straddle, I’d profit as long as the market drift is minimum, but more often than not, this is not the case.

Hence as an adjustment strategy, I’d short futures if the markets fall (because option delta turns positive)…and buy futures if markets starts to go up (because option delta turns negative).

Converting a straddle to a short gut is tricky, by doing so somewhere you are increasing the complexity of the whole situation.

I do remember you mentioning that you’d prefer not to touch the futures, but I personally think this is far more manageable than having to deal with multiple option legs.

I hope I’ve added some value…please do feel free to revert.

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