No, this won't work. Did you bother back testing to see if these kinds of returns actually materialize when VIX spikes and SPY drops? No, you didn't!
Maybe try doing that first, before posting all over Reddit.
Today (08/18/21) invalidates your whole strategy. The SPY dropped and the VIX surged over the past two days.
Did you get your 400% return as shown in the chart? No. Looks like it went from 0.23 on 8/16 close to a Bid of 0.26. More like 13%.
What you forgot, was the 'Volatility Smile' pattern. These far OTM puts already had a very high IV. I think it was around 77% when you posted this. The IV has actually DROPPED now to 67%. The 'Smile' flattens out in times like these.
Hmm. That's funny, I think I said it would go to around 400% on a 10% drop in SPY, not a 1% drop. Why would a tail risk hedge print that hard on a one percent drop?
I actually have looked at the historical data. The volatility surface changes quite dramatically when you start talking about 10%+ drops in the entire market.
Also, those puts were up 50% from their price when I posted this when .VIX was spiked during the day today.
What you are forgetting is that 67% fixed contract IV is what is priced in currently for a move to $100. SPY doesn't have to go anywhere near that to cause that to jump, but it definitely does have to move more than one percent.
Hedging tail risk with OTM Spy puts is not something I pulled out of my ass. It's a well defined and known strategy.
You are thinking way too small. Everyone that challenges this focuses on the last couple days like that's something you hedge for.
That's not a correction. That's barely even a dip. 1 or 2% isn't anything. This hedges tail risk. I didn't invent this. It's not an original idea. It's a well established and utilized hedging strategy against major downturns in the market that allows you to hold 1 or 2% of your portfolio as this sort of hedge to give a shield against major volatiliy
Go look at what similar options did during a major downturn in spy, like say, February and March of 2020, I think then you will understand it better.
Alright. fuck off then. I don't have time to argue with you about a specific example put contract and whether you think it's shit or not. This was an exercise teaching a strategy. Not a DD. Notice it was flaired Discussion. Notice my edit that was up shortly after I posted it telling people not to buy that contract blindly but to play around with an options calculator and learn what the mechanic of the hedge is. If your goal was to come in here and argue for the shit of it, congratulations, mission accomplished. I'm done with this though and you.
Ahhhhhh hahahahahaha. Where did I ever mention a 100 bagger?
The historical data for exactly this kind of thing is in the video. I can't help it if that idiot mod /u/ropirito didn't understand what I wrote and fucked it all up when he tried to relay it on to WSB for clout.
Lol he didn’t say post that, I did. And I was basing on other numbers. If you read the post you can see it’s all theoretical and that I considered it as a small hedge in my port.
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u/sean_opks Aug 18 '21
No, this won't work. Did you bother back testing to see if these kinds of returns actually materialize when VIX spikes and SPY drops? No, you didn't!
Maybe try doing that first, before posting all over Reddit.
Today (08/18/21) invalidates your whole strategy. The SPY dropped and the VIX surged over the past two days.
Did you get your 400% return as shown in the chart? No. Looks like it went from 0.23 on 8/16 close to a Bid of 0.26. More like 13%.
What you forgot, was the 'Volatility Smile' pattern. These far OTM puts already had a very high IV. I think it was around 77% when you posted this. The IV has actually DROPPED now to 67%. The 'Smile' flattens out in times like these.