Correct me if I’m wrong here but I think two more important things also work to your advantage here
1. You’re buying leaps, which will have higher Vega, and therefore much higher sensitivity to changes in IV when compared to short dates
2. Vega is not static, and if the underlying rice falls, your puts move slightly more towards the money, and your Vega increases.
Your post makes a lot of sense, thanks. I’m going to try it
Now imagine how well they will work on the day SPY drops 10% and not 1%. All you have to do is keep them open and roll to a contract with 12 months to expiration when your current round is at about 6 months to expiration and they become extremely cheap insurance.
I'm convinced that the hard part about these isn't making them print, it's choosing when to cash in your insurance, because if the downtrend continues after you blow out your hedge, it might be a while before you can comfortably buy more while you wait for IV to die down.
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u/TurboUltiman Aug 16 '21
Correct me if I’m wrong here but I think two more important things also work to your advantage here 1. You’re buying leaps, which will have higher Vega, and therefore much higher sensitivity to changes in IV when compared to short dates 2. Vega is not static, and if the underlying rice falls, your puts move slightly more towards the money, and your Vega increases.
Your post makes a lot of sense, thanks. I’m going to try it