macrocephalopod on Twitter: "Whole argument seems weird to me because surely the most important thing is the portfolio effect? Selling options in isolation is net +EV over time if done in small enough size. But for many people it would be +EV for them to be net long options because the value of… https://t.co/ygFEnSEbUF"

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JB‏ @be20684347 Feb 21

Replying to @be20684347 @breakingthemark and

This isn't behind a paywall for me apologies if it is for you. Mentions one of the most sophisticated mathematical firms in the world systematically *buying* options. They must have a pretty good reason.https://www.ft.com/content/81811f27-4a8f-4941-99b3-2762cae76542 …

1 reply 0 retweets 5 likes

Matt Hollerbach‏ @breakingthemark Feb 21

Replying to @be20684347 @therobotjames @nope_its_lily

I scanned it. It looks like they are buying and selling options. If you can get a spread there, then I get that. I also saw reference to buying puts. Big difference between buying puts and buying calls.

2 replies 0 retweets 2 likes

Robot James ‏ @therobotjames Feb 21

Replying to @breakingthemark @be20684347 @nope_its_lily

To an option trader, puts and calls are the same thing. Why do you think that is?

1 reply 0 retweets 5 likes

Matt Hollerbach‏ @breakingthemark Feb 21

Replying to @therobotjames @be20684347 @nope_its_lily

Then why is there a volatility smirk if you treat them the same?

2 replies 0 retweets 0 likes

JB‏ @be20684347 Feb 21

Replying to @breakingthemark @therobotjames @nope_its_lily

They're not identical (if different strikes). But if upside calls are overpriced, more than likely downside puts are too. @KrisAbdelmessih has some good blog posts on the vol smile & implied distributions. @SinclairEuan has a paper showing puts more expensive than calls generally

1 reply 0 retweets 5 likes

Kris‏ @KrisAbdelmessih Feb 21

Replying to @be20684347 @breakingthemark and

Matt, just to confirm put call parity is just on a single strike like was said above (if you find different vols on the same strike, which is common bc of financing assumptions or market width, you generally want to use the vol from the OTM option because it's tighter)

1 reply 1 retweet 9 likes

Matt Hollerbach‏ @breakingthemark Feb 21

Replying to @KrisAbdelmessih @be20684347 and

Right, and I was saying the market doesn't treat puts and call the same because a put one standard deviation OTM could be twice the price of a call one standard deviation OTM.

2 replies 0 retweets 3 likes

Kris‏ @KrisAbdelmessih Feb 21

Replying to @breakingthemark @be20684347 and

Yea totally. A volatility smile exists for plenty of reasons. There's a cap structure argument for it but I find the most useful reason --the world is net long. It's a one sided market of hedgers that clears at a price where risk capital is willing to supply liquidity

1 reply 1 retweet 11 likes

Robot James ‏ @therobotjames Feb 21

Replying to @KrisAbdelmessih @breakingthemark and

Convex negative dependency on global risk is: - an attractive asset - an unattractive liability Buyers happy to pay up for it Sellers demand more to take it on

2 replies 1 retweet 12 likes

Matt Hollerbach‏ @breakingthemark Feb 21

Replying to @therobotjames @KrisAbdelmessih and

yes, and least for the overall market, isn't thats why the vol premium exists and why calls must generally be "overpriced". Since the world is generally long stocks, puts are bid up much high than "fair value" and because of put/call parity calls must be more expensive too.

3 replies 0 retweets 1 like

macrocephalopod‏ @macrocephalopod Feb 21

Replying to @breakingthemark @therobotjames and

Whole argument seems weird to me because surely the most important thing is the portfolio effect? Selling options in isolation is net +EV over time if done in small enough size. But for many people it would be +EV for them to be net long options because the value of

1:15 PM - 21 Feb 2022