選擇權賣方無法活過20年?!

sec2100

in my 20 years as professional in markets have I not seen or heard of a single options seller who survived in the long term. I have heard of hundreds and been trading alongside dozens of frenchmen who consistently sold options outright, many of whom hedged the wings, others did not, many made money over long periods of time. But when the unavoidable black swan hit they all faltered, left or got fired and knocked on another door and got rehired. Same game all over.




https://www.elitetrader.com/et/threads/what-risk-management-mistake-did-optionsellers-com-fund-manager-do-to-blow-up-his-fund-and-clients.327102/#post-4761286

sec2100

SamT 發表於 2018-12-22 14:31
很擔心，畢竟我做賣方只有4年，離20年還很遠。我只知道停損很重要，不要一直轉倉來規避損失這件事 ...

賣方確實像保險公司或保險的觀念，必須風險自留(保證金準備多)，風險控制(紀律)、風險移轉(價差保護)，風險抑制(停損)，風險轉稼(再保)。

而波動率就是保險費，往往保費總是在大事發生後變高，一批人在事件中受傷，另一批保險公司卻賣到了最好的保單。

SamT

很擔心，畢竟我做賣方只有4年，離20年還很遠。我只知道停損很重要，不要一直轉倉來規避損失這件事

sec2100

sle的重要看法，不要賣太價外而忽略了大變動時vol對vega的交互影響:


My pleasure. Most of the blowups that I can recall started as short wing carry positions, i.e. strike is far OTM and "the market would not get there". I've seen these both as expressing a view or a systematic strategy (e.g. LJM "safe" fund or these guys for that matter) or as a way to cheapen the position that expressed the core view (e.g. Citadel Eurodollar trade right before the GFC). It's not exactly selling crash, which is extreme short-dated moves, but it's in the same neck of the woods.

They are short convexity that can not be hedged without other convex instruments and then the underlying moves against them. If you are simply short gamma, you have a fairly defined range and you can, for better or for worse, rebalance your delta to limit your variance. On the other hand, if you are short wings, a lot of things go against you at the same time - you have very little gamma (or delta, for that matter) at the inception of the trade but you are short tons of dGamma/dSpot, you are short a fair bit of dVega/dSpot and, finally, you are short dVega/dVol. By the time that position becomes simply a short gamma position, it's a bit too late. "If the left one does not get you, then the right one will".

It's hard to define explicitly what differentiates a "short wing" from "short OTM gamma". Some people draw a hard delta boundary (e.g. 10 delta), but my personal metric is the relationship between Vega and delta - e.g. if you are short an OTM option where most of your daily PnL fluctuation can not be attributed to delta, thats a warning sign for me.

* Another useful metric is theta - if you are collecting and yet the book greeks (delta/gamma) look reasonable, there is something to worry about.

sec2100

If they instead opted for a bear call spread, the returns would be lower but, there would not be a blowout. They can keep collecting their fees and also, get more clients? And even their clients would have accepted a large loss that did not totally wipe them out. They will just charge it to a one in a blue moon occurence and move on. Isn't this selling naked calls just killing the golden goose that lays the golden eggs?

sec2100

To be fair, most of these people seem to blow up not on gamma, but on wings. I.e. they don't delta hedge and their strikes are far OTM. But yes, it was surprisingly easy to attract capital with various short premium strategies in the past 10 years.

sec2100

PPS. There are very few things on earth I know well. Managing a vol book and understanding the risks is at the top of that list. That's why I felt compelled to argue.

sec2100

Naked short gamma is for funds only.

The "trade" is like this:

You write deep OTM in anything that has premium.
You have a very steady return and that attracts the muppets aka. High Networth Individuals and accredited Investors.
You collect a couple of million and make a good living out of your management fees.
Since you win most of the time, the fund grows bigger and bigger and you make even more in management fees.
If you are lucky, you get away with it for a very long time.
If not, you blow up, fly under the radar for a couple of months and open up shop under a different name.


Things to avoid:
- avoid publicity like the plague. If people know your face from interviews, videos and TV, it's impossible to open a new fund once you've blown up.
- Save up a couple of M. You need time to get the machine going again once the lawyers have left.



Seriously, the naked short gamma game is around since the invention of options and a lot of big funds are doing this strategy. Due to the fact that so much money is attracted to the steady returns, you can make heaps of cash without really doing much.
Selling premium isn't that complicated and for the most part it's a waiting game so you can focus on raising money.
Doing this with your own account would be suicide but since you are cashing in on fees and leave the nuke risk to your investors, you are basically risk free.

sec2100

I've sold naked in the past, never really liked it. It Didn't even feel like "trading."

I could be wrong, but I feel like many traders fail, and then they discover selling naked, and it is their holy grail that they finally found. It works great and it feels good to make money so they continue.

What they fail to understand is selling SPX puts is simply just being long the SPX with leverage. This guy was selling calls on NG... he was simply short NG with leverage. In my opinion of course...

sec2100

Well, I have to say I did not know about the fund untill I've read the story, but when I did I wondered why those guys had investors at all.

I know only the basic fundamentals of the energy market, but I think everyone who once touched the petro complex knows one thing for sure: Natural Gas has the potential to blow your account up due to the fact that it is very thin and reacts violently to shifts in supply/demand which is primarily due to weather conditions and other random events..

I mean, how many funds can you all recall blowing up because of trading Natty?? Amaranth any1?
Everyone knows the NGHxx/NGJxx spread aka the "Widowmaker"...I don't know of any other product that's called fking widowmaker.

Now, I don't think anyone would be stupid enough to write naked calls on stuff like VXX, but in these products the option skew reflects the possibility of jumps.

But then there is a guy who thinks selling naked calls in NG during the most volatile period (winter incoming) with size is a good idea. And people give him money to do so.



So I don't think it was necessarily an emotional mistake and anyone who thinks that has obviously never traded so big that he could move the market.

You see a violent move against you and think "this looks ugly, I better lighten up"...but then you realise you have like 1000 contracts and the best offer is 20cars...you hit it, offers reapear 10% higher...for 10cars...and then 20% higher for 5cars.

Especially in options, once the market maker realises that someone needs to get out he squeezes you for the last penny. And this is not equity options where you have 10 Market makers in each name. Natty is probably quoted by 2-3 big firms and a few shops.

Please don't confuse this scenario with your little retail gambling nightmares where you were too drunk or too greedy to stick to your stop loss.

This blow up was like speeding with your 911 turbo that features every electronic assistant. As long as the car stays below a certain limit, even a monkey can drive it fast. If you push it too far, no electronic assistant can fight the laws of physics.


So as long as the market stays within a certain limit, you can gasconade about your "risk management" philosophies, your "quantitative risk management system", your Ph.D.'s, FUDOM, and your *fill in bloat word of choice*.

Once the market bites, you are just a leaf in a tornado aka. a moron(白痴) who traded the wrong market way too big at the wrong time.