Imran Lakha | Options Insight

𝗟𝗲𝘁 𝗺𝗲 𝗿𝗲𝗽𝗲𝗮𝘁 𝘁𝗵𝗶𝘀 𝗽𝗼𝗶𝗻𝘁: 𝗧𝗵𝗲 𝗯𝗲𝘀𝘁 𝗯𝘂𝘆 𝘀𝗶𝗴𝗻𝗮𝗹 𝗶𝗻 𝗺𝗮𝗿𝗸𝗲𝘁𝘀 𝗶𝘀𝗻'𝘁 𝗼𝗻 𝘁𝗵𝗲 𝗽𝗿𝗶𝗰𝗲 𝗰𝗵𝗮𝗿𝘁. When spot makes a new low and VIX refuses to make a new high, pay attention. That's a vol divergence. The options market is quietly telling you it doesn't believe the selloff has legs. But most traders miss it because they're staring at candlesticks. Here's how to read it properly. Pull up fixed strike vol on the front of the curve. If the market is selling off hard and fixed strike vol is flat or drifting lower, that's your tell. The people who price risk for a living are saying "we're not buying fresh protection here." Think about what that means. If vol can't rally when the market is getting destroyed, what happens when spot bounces even 1%? Vol gets annihilated. So the real trade here is selling the vol that can't go up. Different expression, completely different risk profile, and way better risk-reward than just buying the dip. When you learn to trade in more than just the spot dimension, you find edge in other areas like VEGA.

@ThalexGlobal What is your favourite measure of realised vol?

You really don't have to be a quant to understand straddles. We can just explain it in charts. The straddle is the expected move. You can plot the break-even lines and what you'll find is that they almost always line up with a well-defined range. Selling the straddle means betting on the range. Buying the straddle means betting on a breakout. Because markets range more often than they trend, selling straddles has the edge. That said, your P&L will be negatively skewed. It's kind of that simple.

Finally, something to be bullish about!

@LukeGromen @BennettWoodman What do you make of that gold move yesterday?

@BennettWoodman S&P 500 Total Return still down by >50% in gold terms from 2000 highs... 🤯

"Stay invested. Markets always recover." That's what Japanese managers said in 1989. The Nikkei peaked at 38,915. Thirty-six years later, it's still down 20%. Regimes change; Valuation can become extreme. When the worm turns, "stay invested" can sometimes become "stay poor."

𝗧𝗵𝗶𝘀 𝗶𝘀 𝗵𝗼𝘄 𝗮𝗰𝗰𝗼𝘂𝗻𝘁𝘀 𝗯𝗹𝗼𝘄 𝘂𝗽. The wrong mentality: "Always be trading." "Generate income every week." "Sell premium consistently." When VIX is elevated, term structure is inverted, and likely outcomes are more extreme, selling premium in that environment is a leveraged coin flip, basically. I've got no interest in short gamma trades right now. No real confidence in anything pinning. Market's way too risky. That doesn't mean it can't work, it's just a complete coin flip for me, and I don't trade coin flips. The hardest thing in trading isn't finding trades. It's looking at your screen and saying "nothing here fits my framework" and actually meaning it. No-trade is a decision too. Your capital stays intact. Your margin stays clean. And when the regime shifts, you're ready to deploy while everyone else is digging out of a hole they dug by forcing trades that weren't there. The market doesn't owe you a trade every week. Respecting that is the difference between staying in the game for 2 years and staying in the game for 20.

@3PeaksTrading @sarcastic_hedgi Right. I also like those when VVIX elevated like this

@options_insight @sarcastic_hedgi dont mind using call fly's for upside bets while in backwardation

Everyone on fintwit overanalyzing candles and charts and lines in a high correlation market when all you have to watch is bonds, oil and VIX term structure.. the latter of which will tell us when this chaos subsides and VIX curve heads back to normal contango. Still not there but will be watching.

@RenMacLLC @Alpha_Ex_LLC How large is the difference in implied probability?

@options_insight @Alpha_Ex_LLC It's less the level and more the implied probability messaging we're interested in (exploiting)

Brent now pricing more for downside protection than upside at the front-end.

@S6663363679072 Timing is everything in trading. Options allow you to be very precise with your view. That doesn’t mean you’ll always be correct.

@options_insight Your timing wasn’t right. Your fly is for friday at 4PM, that’s the price you’re betting on, not Monday, Tuesday, Wednesday, Thursday, or Friday any time before 4:00 PM

Butterfly spreads look incredible on paper. 10-to-1 payoff. Defined risk. Tight structure. Here's the part that hurts. The fly only pays if you're near the sweet spot at expiry. Before that, you've got almost no delta. At expiry or bust. So picture this. You put on a call fly for Friday. Market rips on Monday exactly the way you predicted. You check your P&L and... you're barely up. Your delta is almost nothing because expiry is 4 days away and vol is high. The theoretical payoff that excited you doesn't kick in until the thing is about to expire. By Wednesday the market's faded. By Friday it's back where it started. Your prediction was right. Your timing was right. Your P&L is flat. An outright call would have been up 150-200% on Monday. You could have taken the money and walked away. The fly held you hostage waiting for a perfect expiry that never came. Before you put on any structure, ask yourself one question: "Can I monetize the move when it happens, or only if the move sticks until expiry?" That question is worth more than any options calculator. The fly gives you leverage but holds you hostage. The outright costs more (decays faster) but lets you take money off the table when the move happens. Know which one you actually need to fit your view, before you trade.

@CAndreisen What’s your logic? Closing the short vega after it has performed?

@options_insight Hmmm... You should be exiting some portion of the closer to the money spread if the market moves quickly to the middle strike, from their you delta hedge the short spread by buying/selling underlying if move follows through. The exit of a butterfly should rarely mirror the entry

@greenlander00 I don’t think they are useless because they help you stay in the trade without getting stopped out or bleeding too much. But obviously the flipside is harder to monetise

@options_insight I find flies at least for me useless in volatile markets. Only have success when things are more calm.

@greenlander00 I think they get seduced by the expiry optics

@options_insight Sometimes I see funds put on big hedges for way OTM put flies and cant see how effective they are. Seems like selling call premium or just raising cash would be more effective

@VolSignals How close to expiry do you run these?

@options_insight These are my favorite structures to exploit the localized dealer hedging flows we model in VS3D use positions to define range exploit dealer's most positive local gamma exploit charm convergence on strike at expiry have found nothing better to date

"Defined risk" sounds boring to some people. Small premium, limited upside. Grow a set! Completely backwards. I spent about $500 on a call fly last week trying to catch a bounce. If it works, that's $2,000 to $3,000. If it doesn't, I've lost $500. I made peace with that spend before I put it on. That's the whole point of these structures. In a market like this, where nobody knows if we're bouncing Monday (as we did) or dropping another 5%, that structure lets me take repeated shots without killing my account. Spend $500. If it works, bank it and set up the next one. If it doesn't, move on, wait for more conviction. Compare that to the trader buying 100 shares on margin to "catch the bounce." Same thesis. One knows their worst case. The other is hoping the market doesn't gap against them overnight. Defined risk is how I stay aggressive when the market is at its most uncertain. You can take multiple well calculated shots when you know exactly what you're risking. If you can't define the max loss before you click the button, you're playing with fire. With real money that gets expensive fast.

@adamscochran So is someone gonna be investigated for this?

5 minutes before Trump’s announcement: * $1.5B notional worth of S&P500 (ES) futures are bought in a single clip. * $192M notional of oil futures (CL) sold. More than 4x-6x any other trade size during the market close. Insiders profited from his lies in broad daylight!

@3PeaksTrading @sarcastic_hedgi Do you even try to get in front of that reversion back to contango or just use it as a signal?

@sarcastic_hedgi Not saying it happens this week at all but would be stronger bull signal of course

@3PeaksTrading Wasn’t higher rates Trumps kryptonite?

$GLD lots of put buying last few days, as gold breaking trend and below 55 EMA now , overnight low tagged one year VWAP at 380 but tend to see these wild parabolic moves retrace at least 61.8% of the advance so that 340 level maybe in play next few months Lots of issues for metals if interest rates rise instead of fall later this year which is what market seems to be implying...

@OptiontradinIQ No, around 75% of earnings moves are below the options implied move. Earnings vol is a sell

𝗜𝘀 𝗜𝘁 𝗔 𝗚𝗼𝗼𝗱 𝗜𝗱𝗲𝗮 𝗧𝗼 𝗕𝘂𝘆 𝗔𝗻 𝗢𝗽𝘁𝗶𝗼𝗻 𝗦𝘁𝗿𝗮𝗱𝗱𝗹𝗲 𝗔𝗰𝗿𝗼𝘀𝘀 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀? Since stocks have the potential to make a big move on earnings announcements, one might think that it is a good idea to buy an option straddle and hold it through earnings to profit from the large move. Is that really a good idea? Unless one has extra money to lose, one really needs to analyze this idea carefully and backtest and/or paper-trade it before throwing hard-earned money into an earnings straddle (pun intended). An option straddle consists of an at-the-money put option plus an at-the-money call option at the same strike and expiration. Since we are buying a straddle, we are buying both the call and put options before the earnings announcement. When we buy an option, we say that we are “long” the option (as opposed to “short” the option). So, this option combination is known as a long straddle. Continue Reading: optionstradingiq.com/option-straddl…

@Alpha_Ex_LLC @RenMacLLC At 130 vol, how much does skew really matter, don’t all options Greeks look very similar?

@RenMacLLC the fact that the skew is even close to flat after a 13% instantaneous down move is telling

@ZeeContrarian1 That’s a good point. Not really sure what kind of deal they are going to be able to negotiate where Trump walks away saving face. That ship seems to have sailed

Trump talks oil down. Iran talks oil up. Both are talking their book. None of the sides. None of the headlines hitting the tape should be trusted. Even if negotiations are happening, it is in Iran’s interest to deny them-because the outcome and leverage of those negotiations are shaped by oil prices.

@prpl8 @KrisAbdelmessih @orrdavid Right, and the long calls are much shorter dated I presume?

@options_insight @KrisAbdelmessih @orrdavid on the snap back can do a number of trades to mitigate risk, turn it into a spread, short the put delta, sell enough calls to buy it back and leave call runners, close the whole thing etc

Besides short oil, what's another way to bet on the Iranian war ending with a great result within 3 weeks? Something obvious, not convoluted. Also, anything with options?

@DTAPCAP The market was sniffing out some squeeze risk, but the trigger we got doesn't feel overly credible, does it?

If stocks don't close down tomorrow, it's got to be some sort of TELL. Why aren't they down more now?