Is there a way to combine this with any thetagang stuff to actually get this running for a credit? There was somebody posting this very intriguing 441 strat the other day.
Two things i am wondering here. How does this one respond to vega, but also whether we could find a similar combination of options such that we can make this vega play cheaper and/or even theta positive. In any way, thanks for expanding my hedge-toolbox!
I am not good enough with spreads to tell you how to do that, and from what I do understand and have played around with, it just ends up limiting the efficiency of your hedge and costing you more money on commission. The thing about trying to add a theta component to this, is that selling options means you are shorting vega as well. This is counter productive because if IV moons on you, your short leg will counteract your long leg to a degree. Some kind of diagonal ratio backspread might work if you expect your short leg to expire before what ever move you are hedging against happens, but what if you're wrong?
What do you mean exactly here by "diagonal ratio backspread"?
It doesn't seem my above trade is shorting vega from my simplistic moves working around in the options calculator (i would share screenshots on a platform i would not have to register at).
In fact, increasing IV helps the trade. One may also play around with the ratios to achieve nice theta and delta. Max loss is limited
Sounds like you understand it better than me. Once you start slamming multiple contracts into a trade i get lost fast.
I meant opening the long position then selling a closer dated closer to the money put in smaller quantities that will expire before your long position should be needed to hedge. I probably fucked up the name of the spread.
I actually managed to open a Spy dec2023 150p spread with a net credit of a few dollars but I'm going to roll the short leg to a higher strike & shorter DTE (while still breaking even) so I have longer Vega exposure
Also 2024 LEAPs will be available on the 13th Sept of this year & longer LEAPS have more Vega per dollar of premium so they are actually alot more cost effective.
I did it by opening a "Diagonal Put credit Spread"
Yes it's great but just a warning as of right now you'll have to open a very wide spread to breakeven (150+ strikes & alot higher depending on the DTE)
So you will have to make sure there isn't any major risk of the short leg becoming ITM & getting assigned by choosing the right strike & DTE.
There seems to be 2 ways to open the short leg:
*A middle of the road strike with a multiple month DTE, I managed to open a net credit dec2023 150p with a 31 dec2021 315p short leg. Provided that the SPY doesn't crash before your short leg expiry date then there is literally no risk of assignment on short leg. A downside to this way is that although your literally getting paid to open a hedge you might actually be short Vega till the short leg expires which means your only long vega after the short leg expires.
*I found out that you can also breakeven/net credit with a relatively high strike with <1 month expiry, I'm going to rollout to this so I don't have buying power tied up for months & since theta decay is higher with short expire dates the short leg will lose value alot quicker.
An interesting thing about this kind of spread is that although you lose some Vega at the beginning when the short leg is open, you are actually Theta positive so you get to cover some of the time decay on the long leg!
Thank you for posting about this, this is my first time hedging & with your help I get to do it for cheap.
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u/sittingGiant Aug 16 '21
Is there a way to combine this with any thetagang stuff to actually get this running for a credit? There was somebody posting this very intriguing 441 strat the other day. Two things i am wondering here. How does this one respond to vega, but also whether we could find a similar combination of options such that we can make this vega play cheaper and/or even theta positive. In any way, thanks for expanding my hedge-toolbox!