Trade idea
MU position management
The speaker mentions holding an existing position in Micron (MU) and being prepared to 'go down with the ship.' However, they also indicate adding to the position in a different way, suggesting a strategy of incremental buying. The reasoning is based on the belief that the market may continue to move in a favorable direction, despite short-term volatility. The proposed execution involves maintaining the existing position while selectively adding to it based on market conditions.
View full notes
Strategyposition management
Assetequity
Time horizonnot specified
Entry / triggerexisting position
Target / exitnot specified
Invalidation / stopnot specified
Speakerspeaker
Risks- Market reversal could lead to losses.
- The speaker's strategy is not fully detailed, making it difficult to assess risk exposure accurately.
Insight
Adjusting Positions Based on Implied Volatility and Time to Expiration
Traders should adjust their positions based on the level of implied volatility (IVR) and the time remaining until expiration. If IVR remains high and there are more than 30 days until expiration, traders should stay in the same expiration cycle and adjust their deltas as needed. If IVR remains high but there are less than 24 days until expiration, traders should roll into the next expiration cycle and recenter their positions. If IVR drops below 30, traders should consider closing undefined risk trades as most of the premium has likely decayed. Defined risk trades can be held longer due to their reduced dependency on implied volatility.
View full notes
Applicable when- high implied volatility
- defined risk trades
- undefined risk trades
Limitations- The strategy assumes that IVR remains high or drops below 30 as stated
- It does not account for market direction or other external factors affecting the trade
Q&A
How can one stay fresh in trading by managing stale positions?
The speaker suggests closing out stale positions and not looking at them again for a long time to maintain a fresh mindset. This approach helps avoid being bogged down by losing positions and allows for a mental clean slate.
View full notes
Actionable takeawayClose out stale positions and avoid revisiting them to maintain a fresh trading mindset.
Q&A
Is there a rule on how to calculate an acceptable debit to pay when buying the guts and selling the wings?
There is no rule on an acceptable debit to pay when buying the guts and selling the wings. The amount paid does not affect the P&L, as long as the theoretical price is considered. The key is how much of a theoretical price is given up around mid price.
View full notes
Actionable takeawayThe amount paid for a strangle does not affect the P&L, as long as the theoretical price is considered. The key is how much of a theoretical price is given up around mid price.
Q&A
Is there a study that indicates an ideal or preferred exit management strategy when the position is underwater?
The transcript references a study suggesting that managing early 21 days to expiration or at 50% profit is most efficient for capital use. However, when a position is underwater, the strategy shifts to focus on risk management and potential recovery. The exact methodology and sample size of the study are not specified.
View full notes
Actionable takeawayWhen a position is underwater, the focus should shift to risk management and potential recovery strategies, rather than strict adherence to the 21-day or 50% profit rule.
Q&A
Are you still short it?
The speaker confirms they are still short the stock, but acknowledges that it is not working well.
View full notes
Actionable takeawayThe speaker is maintaining a short position despite its poor performance, indicating a possible need for adjustment or reassessment.
Q&A
What is the significance of beta weighted deltas in trading?
Beta weighted deltas simplify position management by allowing traders to assess overall risk without comparing individual assets. This method pre-prices changes in underlying assets and is used by high-frequency firms for effective risk management.
View full notes
Actionable takeawayBeta weighted deltas are a useful tool for simplifying risk assessment across multiple assets.
Q&A
Do you adjust your zero days, example, rolling up puts for a credit as the calls get tested?
Yes, the speaker advises adjusting zero days by rolling up puts or down calls as needed. The speaker emphasizes that adjusting positions is crucial to manage risk and volatility, and not adjusting can lead to significant losses.
View full notes
Actionable takeawayAdjusting positions in options trading is essential to manage risk and volatility. The speaker recommends rolling up puts or down calls as needed to mitigate the risk of large swings in the account.
Q&A
If somebody is trading too big, what is the answer?
The speaker states that if someone is trading too big, they are in defensive mode and should consider selling premium if they believe the market will not continue to break down. The speaker also mentions that selling calls can be an alternative strategy, but the calls are more risky as they can be 'killed' if the market rallies.
View full notes
Actionable takeawayTraders should consider selling premium if they believe the market will not continue to break down, and they should be prepared to adjust their positions if the market moves against their expectations.
Q&A
What do you think about SpaceX earnings next week? Are you going to roll your position?
The speaker plans to roll their SpaceX position this Friday to September and may reenter or roll again. They believe earnings won't significantly impact the stock, given the price drop from the IPO.
View full notes
Actionable takeawayThe speaker is rolling their position and does not expect earnings to have a significant impact.
Q&A
Should I hold an open position through earnings?
The speaker advises that if you would not open the position today with the current information, you should adjust or cover it. If you would open it, you should hold it but re-center the strikes around the expected move. The key is to adjust the position to be outside or at the expected move to increase the statistical chance of success.
View full notes
Actionable takeawayAdjust positions to be outside or at the expected move if holding through earnings.
Q&A
What are the rules around adjusting a position, rolling a position forward, or closing a position?
The rules involve adjusting positions based on implied volatility (IVR) and time to expiration. If IVR remains high and there are more than 30 days until expiration, traders should stay in the same expiration cycle and adjust their deltas. If IVR remains high but there are less than 24 days until expiration, traders should roll into the next expiration cycle and recenter their positions. If IVR drops below 30, traders should consider closing undefined risk trades as most of the premium has likely decayed. Defined risk trades can be held longer due to their reduced dependency on implied volatility.
View full notes
Actionable takeawayTraders should adjust their positions based on IVR and time to expiration, rolling forward or closing trades as appropriate.
Q&A
What is the guidance on adjusting defined risk positions at 21 days?
For defined risk positions, it's recommended to roll or close the position after 21 days as it cleans up the position tab. However, if left until 14 days or less, the difference is minimal, and there's not much urgency to adjust.
View full notes
Actionable takeawayDefined risk positions should be rolled or closed after 21 days for consistency and to maintain a clean position tab. Adjustments are not urgent if the position is near expiration.
Q&A
What is the difference between buying a single stock future and selling a covered call?
Buying a single stock future and selling a covered call are different strategies with different capital requirements and risk profiles. The former requires putting up capital for both positions, while the latter can be synthetically replicated by selling a put with the same strike price.
View full notes
Actionable takeawaySynthetic positions can be used to replicate the risk and reward profile of other strategies.
Q&A
Do you worry about position glitching out there for a minute? You all right?
The speaker reassures that they are fine and not worried about position glitching.
View full notes
Actionable takeawayThe speaker is not concerned about position glitching, indicating it's not a significant issue for them.
Q&A
Do you have anything in Nvidia waiting?
The speaker does not have a position in Nvidia but has a position in MU, which is considered fine. The speaker is also long Netflix and short some puts on various strike prices.
View full notes
Actionable takeawayThe speaker is managing multiple positions across different assets, including long and short positions in equities and options.