u/I_HopeThat_WasFart

I sold 4x naked wide strangles going into last earnings, when the Oct IV far way far OTM options were at around a 104% IV (we are talking like 30% out of the money)

I sold that strangle and struggled hard to hedge it through the down slide of chips, but the holding of that insurance paid off big time

had to roll and use short term options to hedge the bleed, but the IV on these have finally collapsed almost 40%

Up 40k the past 3 months alone

Long term options work when you allow then to work, I will never have my core options positions be short term again

I have been trading delta neutral (vol trading) for the better part of a decade

Its not glamorous, you wont find 10% months

but you can target 2% a month, with an unbiased direction on the market, a big win for a whale account, looking for something better than the wheel, which severely caps your upside on corrections (selling capital gains back to the market maker for less than its fair value)

the strategy is simple, put all your cash into SGOV to start

finding theta greater from SGOV is what you now need to go hunt and find, obviously this needs to be taken into account with gamma (theta and gamma go hand in hand, its also called the cost of convexity)

you dont need to blindly pick high IV names and pray a bull market keeps them above your .25 delta purchase price (you already ignored spreads if you did this, ill talk about this later)

so if we are not trading direction, what are we doing? we are trading volatility

Multiple models can indicate rich vs cheap volatility, a lot of this arises from massive fear causing market makers to boost bid/ask on puts, hence IV, and hence the normal put skew you see on a volatility surface plot

there is a way to exploit this. The way market makers prevent you from doing this is widening the spread to obscene levels, anticipating anyone running the wheel will blindly pay the "troll tax" to cross the bridge to profit

The idea is patience, your strategy may look great on paper but get fucked later just by a sharply moving stock causing MMs to panic and widening spreads, novices see this as "oh shit im getting fucked" and immediately buy or sell on their wide bid/ask, you just gave a market maker a fucking martini and bump in the bathroom for him and his friends by doing so

Find a position, dont enter immediately, wait for price to come to you, if you are between the spread of MMs price you are providing liquidity and not taking it, this prevents NY market maker from putting your money up their nose

Exiting or rebalancing back to delta neutral for long term holdings is more important

never hedge with shares, always hedge with shorter term spreads to account for divergence from delta neutral in your longer term strats

if you need to rebalance, never sell a spread without a profit if you can avoid it at all(in calm markets, you are near delta neutral, your spreads are close to the money, and MM spreads are wide)

in this case, hedge with shares, put an order in to get you back to delta neutral, let the hedge of shares do its work until your spread fills at or above profit, sell the share hedge

No way institutions just shook out the news late in trading...

or did they?

MU October IV is sitting at over 100% IV for contracts 40% OTM (This is insane by the way)

NVIDA in 2023 was the last time this happened on their massive guidance from my research, Meme stocks being another

This is a MASSIVE premium on insurance this far out in term, and a volatility bubble goldmine

this also says a couple things:

- MU is the bottleneck of the entire AI industry, if MU says demand is slowing, AI could be down 40% as a whole, hence the risk premium demanded from the 100% IV so far out

- OR Its massive institutional hedging and MM IV expansion

- AND MMs are terrified of gap risk, they dont want to sell any more insurance, they just boost the IV

This is MASSIVE panic, like unheard of type of panic

$7 wide spreads in October are also a tell tale sign of MMs dont know wtf is going to happen

This earnings is going to be BIG, really big, like crash the AI market on bad guidance big, or a massive volatility bubble waiting to be popped

Massive put OI at that level for Friday expiry, looks like this price level is shaping up to be the launch pad for the implied move tomorrow

And Berkshire said take $10bn of my money at a 5% discount

Where are you now AI bears?

This is a massive precedent being set for the mag7

Basically fuck buybacks and the debt market, we can get it for free by diluting existing shareholders

I have honestly never seen anything like this for a company of this size...

This is probably pretty silly in hindsight, we are pricing in a perfect resolution to the war, but the IV on these semis and sub sector supporting the close to $1T in CAPEX next year by mag7 was too hard to pass up

We all know data centers and energy are the main thing holding AI back from absolute insane returns, AI is confirmed via Anthropic posting its 30B run revenue last month (was not supposed to be anywhere near there until EOY)

Now we have a memory chip shortage, I've been tracking some of these (MU in particular) and curious as to when I see a major announcement, we see a decline in these mem chip providers due to no real guidance on their ability to support increased demand in their guidance

Is anyone else tracking this?