Optionvue Update

Discussion in 'OptionVue Forum' started by Kevin Lee, Dec 24, 2015.

  1. Rakesh

    Rakesh Active Member

    Great summary Kevin.

    One comment I have is that rolling the middle shorts forward introduces more downside risk than rolling upper longs in.

    So, in the case where IV is very low and the market has been grinding up, the M3 T+0 is relatively more stable even over the upper sea of death because IV can't really go lower and skew can't steepen further. The one caveat of rolling shorts forward in this scenario is that (absent other adjustments) you are introducing more downside risk in the event of a sharp pullback (like we had earlier this September). If you do roll shorts forward, look to manage downside risk by also rolling in lower longs -- especially if that lower roll is super cheap.
     
  2. Sanjeev B

    Sanjeev B Active Member

    I would like some clarification to above statement. Is the above statement referring positioning of the short & long strikes relative to the what is shown in Skew graph ?
    Does this suggest that if the Market is as 1150 than place the shorts at 1140 & upper longs at around 1160 OR
    Does this suggest that if the Market is as 1150 than place the upper longs at 1140 & shorts at around 1160 ?
     
  3. Kevin Lee

    Kevin Lee Well-Known Member

    Firstly, the context is the skew must be flat to begin with. That means, the expectation is for the skew to steepen once the market moves up and the IV drops. IV of strikes above ATM will drop relative more than IV of strikes below ATM. In that case, it's advantageous to place the short above market and long below market. So, using your example, if market is 1150, then place the long at 1140 and the short at 1160.
     
  4. Sanjeev B

    Sanjeev B Active Member

    Thanks for the quick response Kevin.
     
    Last edited: Feb 4, 2018

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