23 lines
1.4 KiB
Plaintext
23 lines
1.4 KiB
Plaintext
Conclusions
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The same stock during the same week was used in both examples. These
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two traders started out with equal and opposite positions. They might as
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well have made the trade with each other. And although in this case the vol
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buyer (Harry) had a pretty good week and the vol seller (Mary) had a not-
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so-good week, it’s important to notice that the dollar value of the vol
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buyer’s profit was not the same as the dollar value of the vol seller’s loss.
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Why? Because each trader hedged his or her position differently. Option
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trading is not a zero-sum game.
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Option-selling delta-neutral strategies work well in low-volatility
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environments. Small moves are acceptable. It’s the big moves that can blow
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you out of the water.
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Like long-gamma traders, short-gamma traders have many techniques for
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covering deltas when the stock moves. It is common to cover partial deltas,
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as Mary did on day four of the last example. Conversely, if a stock is
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expected to continue along its trajectory up or down, traders will sometimes
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overhedge by buying more deltas (stock) than they are short or selling more
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than they are long, in anticipation of continued price rises. Daily standard
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deviation derived from implied volatility is a common measure used by
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short-gamma players to calculate price points at which to enter hedges.
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Market feel and other indicators are also used by experienced traders when
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deciding when and how to hedge. Each trader must find what works best for
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him or her. |