Okay let me try to explain, multiple tweets
You have 1 BTC long (delta is 1)
Weekly MOVE contract
Strike: $29k
Price: 2.5k
btc price: $31k
Delta: 0.5
Gamma: some positive value
Theta: negative value
Short 2 MOVE contracts
2 * -0.5 = -1
Negative delta bc short MOVE
You have 1 BTC long (delta is 1)
Weekly MOVE contract
Strike: $29k
Price: 2.5k
btc price: $31k
Delta: 0.5
Gamma: some positive value
Theta: negative value
Short 2 MOVE contracts
2 * -0.5 = -1
Negative delta bc short MOVE
Our 1 BTC long is a delta 1 position
Our 2 MOVE contracts have delta of -1
1 - 1 = 0 We are delta neutral
We short weekly, positive & negative values are swapped
Our gamma is negative: Sharp movements will hurt our MOVE pnl
Our theta is positive: we gain money as time passes
Our 2 MOVE contracts have delta of -1
1 - 1 = 0 We are delta neutral
We short weekly, positive & negative values are swapped
Our gamma is negative: Sharp movements will hurt our MOVE pnl
Our theta is positive: we gain money as time passes
Imagine BTC drops 30k to 29.5k
Our BTC perp loses PNL becomes less
Our MOVE contract PNL gains value
Suddenly the delta of a MOVE contract is 0.4
We shorted 2 MOVE so our MOVE delta is -0.8
Our 1 BTC long has a still a delta of 1
1 - 0.8 = 0.2
We aren't delta neural so...
Our BTC perp loses PNL becomes less
Our MOVE contract PNL gains value
Suddenly the delta of a MOVE contract is 0.4
We shorted 2 MOVE so our MOVE delta is -0.8
Our 1 BTC long has a still a delta of 1
1 - 0.8 = 0.2
We aren't delta neural so...
We have a delta exposure of +0.2
Our short MOVE contract gamma is negative
We need to sell, reduce our BTC long by 0.2 BTC
We sell 0.2 BTC at 29.5k to stay delta hedged
Our current position:
Long 0.8 BTC
Short 2 MOVE
Our short MOVE contract gamma is negative
We need to sell, reduce our BTC long by 0.2 BTC
We sell 0.2 BTC at 29.5k to stay delta hedged
Our current position:
Long 0.8 BTC
Short 2 MOVE
Now imagine BTC drops to 29.5k to 29k
MOVE contract delta changes from 0.4 to 0.3
We are short 2 MOVE contracts
2 * -0.3 = -0.6
Our BTC long of 0.8 has a delta of 0.8
0.8 - 0.6 = 0.2
We have a delta exposure of 0.2, we need to neutralize by selling 0.2 BTC at 29k
MOVE contract delta changes from 0.4 to 0.3
We are short 2 MOVE contracts
2 * -0.3 = -0.6
Our BTC long of 0.8 has a delta of 0.8
0.8 - 0.6 = 0.2
We have a delta exposure of 0.2, we need to neutralize by selling 0.2 BTC at 29k
Our MOVE contract short makes us money as it moves back to the strike price and the time decay lowers the value of our MOVE contract
But you can see. Market makers/dealers have to do the same when being short volatility or short gamma
Sell underlying low to offset the risk
But you can see. Market makers/dealers have to do the same when being short volatility or short gamma
Sell underlying low to offset the risk
Now if BTC jumps back to $29.5K
MOVE contract delta goes from 0.3 to 0.4
We are short so 2*-0.4 = -0.8
Our current BTC long is 0.6 BTC (delta 0.6)
0.6 - 0.8 = -0.2 delta
Fuck now need to buy back 0.2 BTC at $29.5k (we sold at $29k)
Short gamma/vol makes us chase our delta
MOVE contract delta goes from 0.3 to 0.4
We are short so 2*-0.4 = -0.8
Our current BTC long is 0.6 BTC (delta 0.6)
0.6 - 0.8 = -0.2 delta
Fuck now need to buy back 0.2 BTC at $29.5k (we sold at $29k)
Short gamma/vol makes us chase our delta
This is how market makers/dealers/delta neural traders have to hedge
See you can see how this drives a lot of price action we are seeing
Bart up, bart down, Bart up
Remember everytime you open a long/short, you fill a market maker. He is stuck with the opposite of your trade
See you can see how this drives a lot of price action we are seeing
Bart up, bart down, Bart up
Remember everytime you open a long/short, you fill a market maker. He is stuck with the opposite of your trade
And needs to delta hedge it
Either with an option strategy, a move contract (basically a straddle)
Dealers aren't watching PNL but rather their Greeks which are risk params for them
And stay within the risk param (could be different for any firm/fund/market maker) assigned
Either with an option strategy, a move contract (basically a straddle)
Dealers aren't watching PNL but rather their Greeks which are risk params for them
And stay within the risk param (could be different for any firm/fund/market maker) assigned
Dealers/market makers/institutions/prop firms
They don't use stop-losses
They hedge and watch their Greeks as risk considerations
Could be working for a prop firm and an alarm goes off
"Hey you have too much Vega risk. That's not within your risk parameter. Reduce Vega risk"
They don't use stop-losses
They hedge and watch their Greeks as risk considerations
Could be working for a prop firm and an alarm goes off
"Hey you have too much Vega risk. That's not within your risk parameter. Reduce Vega risk"
Now they don't have one degen position open
They market make & thousands positions open. all different assets. execute thousands of orders within risk params
They don't use stops to bail out of a MOVE contract for example
They will trade ie underlying/derive to offset risk
They market make & thousands positions open. all different assets. execute thousands of orders within risk params
They don't use stops to bail out of a MOVE contract for example
They will trade ie underlying/derive to offset risk
So if you thought the way of MOVE contracts work like statistics
Hmmm Saturday on average there's on average a $500 move
MOVE contract is trading at $800, good to short!
Hate to break it to you, you aren't as savvy as you think you are. It doesn't work like that "actually"
Hmmm Saturday on average there's on average a $500 move
MOVE contract is trading at $800, good to short!
Hate to break it to you, you aren't as savvy as you think you are. It doesn't work like that "actually"
"naked" move contracts trade
Like shorting MOVE and not delta hedging by trading the underlying or perpetual
You bring unlimited risk, you might be right 8/10 times
2/10 times it takes away all your profit
Long, lose 8/10 times
Also forget prices, implied vol vs realized vol
Like shorting MOVE and not delta hedging by trading the underlying or perpetual
You bring unlimited risk, you might be right 8/10 times
2/10 times it takes away all your profit
Long, lose 8/10 times
Also forget prices, implied vol vs realized vol
This is kind of hard to cover in my FTX MOVE contract article since you need to know all about options trading first
Written a lot about options trading lately: @romanornr/" target="_blank" rel="noopener" onclick="event.stopPropagation()">medium.com
You need to read every post and do advanced reading later on but that's up to you
Written a lot about options trading lately: @romanornr/" target="_blank" rel="noopener" onclick="event.stopPropagation()">medium.com
You need to read every post and do advanced reading later on but that's up to you
When I wrote that first FTX MOVE Contracts article in 2020
I just bet Sam & his quants had a good laugh
"lmfao he thinks it just works like a that. Absolute value of a MOVE"
"lmfao he uses statistics to get a the average of each day. He doesn't know"
Still much I don't know
I just bet Sam & his quants had a good laugh
"lmfao he thinks it just works like a that. Absolute value of a MOVE"
"lmfao he uses statistics to get a the average of each day. He doesn't know"
Still much I don't know
And Sam & his quants probably have a great laugh right now if they read this thread
"Lmfao he doesn't know about x y z yet. Retail noob is getting closer lmao but still low IQ lmao. Not gonna make it"
Can just imagine kek
"Lmfao he doesn't know about x y z yet. Retail noob is getting closer lmao but still low IQ lmao. Not gonna make it"
Can just imagine kek
Quants at Alameda:
"He thinks he know. Retail peasant tries to teach the community but he's still a wrong. They have no chance. No chance."
"He thinks he know. Retail peasant tries to teach the community but he's still a wrong. They have no chance. No chance."
Disclaimer:
I don't have any formal education or training in finance. I'm just like you guys. A retail traders who tries to a ascend
At middle school, I only remember Pythagorean theorem, so I'm neither an algebra god or calculus
However calculus would be useful
I don't have any formal education or training in finance. I'm just like you guys. A retail traders who tries to a ascend
At middle school, I only remember Pythagorean theorem, so I'm neither an algebra god or calculus
However calculus would be useful
I'm using FTX MOVE contracts (which are basically option straddles) as an example because you guys have become familiar with them
You can see the delta, implied vol & gamma of a MOVE contract on desktop (not on mobile app)
But.. doesn't show all
You can see the delta, implied vol & gamma of a MOVE contract on desktop (not on mobile app)
But.. doesn't show all
You can use @GenesisVol to get all the information you need. ie @FTX_Official doesn't show the vega, theta, etc
Also kinda "annoying" that they don't show the delta value of MOVE when using their mobile app.
An alternative incoming....
Also kinda "annoying" that they don't show the delta value of MOVE when using their mobile app.
An alternative incoming....
@GenesisVol @FTX_Official When I am on mobile, I use the FTX MOVE dashboard from @laevitas1 which he build
app.laevitas.ch
Also shows other data. Easy to use mobile. On genesisvol I often have to login again & again & again
Also @laevitas1 is for free
app.laevitas.ch
Also shows other data. Easy to use mobile. On genesisvol I often have to login again & again & again
Also @laevitas1 is for free
But when you are on mobile and visit @laevitas1 his dashboard
Make sure on mobile chrome to view in desktop mode
But good dashboard and quick to check & view on mobile when you're afk
Arguably a professional trader ofc doesn't trade from his phone or uses FTX UI but API instead
Make sure on mobile chrome to view in desktop mode
But good dashboard and quick to check & view on mobile when you're afk
Arguably a professional trader ofc doesn't trade from his phone or uses FTX UI but API instead
For anyone questioning how PNL then looks like when delta hedging
Here's a small delta hedged trade
I don't use big positions because I too am a still learning
It's the time decay (theta) that erodes the value of a MOVE contract also other reasons but
Hence the short
Here's a small delta hedged trade
I don't use big positions because I too am a still learning
It's the time decay (theta) that erodes the value of a MOVE contract also other reasons but
Hence the short
You don't have to be completely delta-neutral
Some firms/dealers accept "some" directional risk within certain constraints
Also Less frequently rehedging (by trading underlying derivs ie perp)
You *can* accept some directional risk by being delta-neutral'ish
Ie 0.05 delta
Some firms/dealers accept "some" directional risk within certain constraints
Also Less frequently rehedging (by trading underlying derivs ie perp)
You *can* accept some directional risk by being delta-neutral'ish
Ie 0.05 delta
However, you could also be long 2 MOVE contracts
Delta: 0.5 * 2 = 1
Now you're long 1 delta. To neutralize your delta, short 1 BTC (spot 1 btc = 1 delta)
Delta neutral
Now if BTC drops from $30k to 29k
MOVE contract delta drops to 0.4
2 *0.4 = 0.8
0.8 - 1 = -0.2 delta
Delta: 0.5 * 2 = 1
Now you're long 1 delta. To neutralize your delta, short 1 BTC (spot 1 btc = 1 delta)
Delta neutral
Now if BTC drops from $30k to 29k
MOVE contract delta drops to 0.4
2 *0.4 = 0.8
0.8 - 1 = -0.2 delta
Since we are long gamma (by being long MOVE)
In total we now have a negative delta of -0.2
We can fix that by BUYING 0.2 BTC
Which reduces our short to 0.8 BTC
Now we are delta neutral by buying lower instead of selling lower
In total we now have a negative delta of -0.2
We can fix that by BUYING 0.2 BTC
Which reduces our short to 0.8 BTC
Now we are delta neutral by buying lower instead of selling lower
If BTC would move again from 29k to $30k
MOVE contract delta: 0.5
2 * 0.5 = 1 delta
-0.8 BTC short = -0.8 delta
1-0.8 = 0.2 delta
We can fix this by selling 0.2 BTC at $30k to be delta neutral
MOVE contract delta: 0.5
2 * 0.5 = 1 delta
-0.8 BTC short = -0.8 delta
1-0.8 = 0.2 delta
We can fix this by selling 0.2 BTC at $30k to be delta neutral
You wonder what the point of all that was
Well you bought 0.2 BTC at 29k
Sold 0.2 BTC at 30k
These delta hedging trades are profitable. Because you buy low & sell high whenever being long MOVE (long gamma)
By being short MOVE (short gamma) you sell low & chase market higher
Well you bought 0.2 BTC at 29k
Sold 0.2 BTC at 30k
These delta hedging trades are profitable. Because you buy low & sell high whenever being long MOVE (long gamma)
By being short MOVE (short gamma) you sell low & chase market higher
Now you wonder why the fuck someone would be rather short gamma (short move) instead of long gamma (long move)
Being long MOVE and keep making delta hedging profitable trades sounds good unfortunately there's no free lunch
Being long gamma comes with negative theta (time decay)
Being long MOVE and keep making delta hedging profitable trades sounds good unfortunately there's no free lunch
Being long gamma comes with negative theta (time decay)
As time passes, MOVE contracts keep losing their value as time passes if the underlying doesn't move with magnitude
So it's a trade off. You rather short MOVE contracts & chase delta but yield from the time decay of move contracts
Or long MOVE but you need timing & enough move
So it's a trade off. You rather short MOVE contracts & chase delta but yield from the time decay of move contracts
Or long MOVE but you need timing & enough move
Thing to look at is implied volatiltiy vs realized volatility
high implied volatiltiy but low realized volatiltiy
You're usually better off shorting MOVE A
However if realized vol is higher than implied vol. You rather long a MOVE contract & hedge
This is an oversimplification!
high implied volatiltiy but low realized volatiltiy
You're usually better off shorting MOVE A
However if realized vol is higher than implied vol. You rather long a MOVE contract & hedge
This is an oversimplification!
However shorting MOVE contracts might work out way more often than being long MOVE contract
People tend to overestimate how much the market will move (just look at CT)
However being short MOVE comes with unlimited risk since it's shorting & max gain is your size shorted
People tend to overestimate how much the market will move (just look at CT)
However being short MOVE comes with unlimited risk since it's shorting & max gain is your size shorted
Being short MOVE is being short gamma
You know why it's dangerous? Remember that GamrStock "gamma squueze"
Yeah you might get the idea of "chasing delta"
As hedgefunds had to chase delta by buying the underlying which kept the market squeezing higher
You know why it's dangerous? Remember that GamrStock "gamma squueze"
Yeah you might get the idea of "chasing delta"
As hedgefunds had to chase delta by buying the underlying which kept the market squeezing higher
The delta isn't static and has different delta values at different levels of the underlying price
This one is for a call option.
The delta isn't linear but has an "S" curve which moves at a certain speed
This one is for a call option.
The delta isn't linear but has an "S" curve which moves at a certain speed
Now when being "short-gamma" ie selling a "call option"
You can see the S curve I've drawn. Max acceleration around a delta of 0.5
You can see the delta hedging trades are losses but with the call option you short decays in value (might make it profitable)
You can see the S curve I've drawn. Max acceleration around a delta of 0.5
You can see the delta hedging trades are losses but with the call option you short decays in value (might make it profitable)
Now, this is gamma
You can see market makers use options to delta hedge the trades you aggressively take from them when you yolo market buy
They need to constantly re-hedge that option (strategy) and trade the underlying/perps to constantly hedge.
You can see market makers use options to delta hedge the trades you aggressively take from them when you yolo market buy
They need to constantly re-hedge that option (strategy) and trade the underlying/perps to constantly hedge.
This constantly hedging to mitigate/transfer risk and delta hedge by trading the underlying is what drives a lot of price action.
Maybe the option market has grown so big that the option market drives price action instead of the other way around
Maybe the option market has grown so big that the option market drives price action instead of the other way around
It's a "tail that wags the dog" situation
Massive ignorance when someone doesn't want to study options trading because "I don't want to trade options"
Even if you don't want to, understanding the mechanics and the hedging flows can give you a massive edge
Massive ignorance when someone doesn't want to study options trading because "I don't want to trade options"
Even if you don't want to, understanding the mechanics and the hedging flows can give you a massive edge
Working on part 5 of my options trading article but felt like I needed to tweet this all
because too many seem to be oblivious about how hedging flows impact the market
How prop firms/dealers/market makers work
Been writing a lot of articles about this
romanornr.medium.com
because too many seem to be oblivious about how hedging flows impact the market
How prop firms/dealers/market makers work
Been writing a lot of articles about this
romanornr.medium.com
Decided to write my thoughts out in a stupid tweet thread
Have gotten tired of people saying "not interested in options because I won't trade them"
But this is how hedge funds/prop firms/market makers/dealers etc work
Have gotten tired of people saying "not interested in options because I won't trade them"
But this is how hedge funds/prop firms/market makers/dealers etc work
Anyways remember this tweet from CMS
He basically says he doesn't do TA at all
Because he most likely does hedging and understands how hedging flows impacts price action
He basically says he doesn't do TA at all
Because he most likely does hedging and understands how hedging flows impacts price action
Anyways everyone calling others retail traders
You and I are retail traders. When you say "retail traders" you just mean normies&newbies
But we are still retail
Everyone thinks they are "not retail" but understanding hedging flows, market dynamics is really something else
You and I are retail traders. When you say "retail traders" you just mean normies&newbies
But we are still retail
Everyone thinks they are "not retail" but understanding hedging flows, market dynamics is really something else
So if you're planning to apply at Alameda Research and show your tradingview with your "technical analysis" charts
Or you're a "wanna be quant" who relies on statistics or market profiles
You will most likely be laughed in your face, it's not good enough to be prop desk trader
Or you're a "wanna be quant" who relies on statistics or market profiles
You will most likely be laughed in your face, it's not good enough to be prop desk trader
14:27 vs 22:21 (Dutch time)
You van see the difference as time passed by (Theta decay) while being delta-neutral
Didn't kept neutralizing my delta. Was outside today. Only adjusted hedge a few times instead of constant
Still there's result
You van see the difference as time passed by (Theta decay) while being delta-neutral
Didn't kept neutralizing my delta. Was outside today. Only adjusted hedge a few times instead of constant
Still there's result
I hope reading this thread was a game changer
A tweet thread written in a rush on mobile with no spell checker but whatever
Options trading & FTX MOVE Contracts, I've written multiple articles
@romanornr/" target="_blank" rel="noopener" onclick="event.stopPropagation()">medium.com
Anyways
A tweet thread written in a rush on mobile with no spell checker but whatever
Options trading & FTX MOVE Contracts, I've written multiple articles
@romanornr/" target="_blank" rel="noopener" onclick="event.stopPropagation()">medium.com
Anyways
Closed out today
When I'm short gamma/short vol (short MOVE contract)
I try to close out on Thursday or early Friday.
Tends to be the bottom. Not because "statistics" like "oh on Friday statistically higher moves"
It's because of the DOV auctions
Hope this was an eye opener
When I'm short gamma/short vol (short MOVE contract)
I try to close out on Thursday or early Friday.
Tends to be the bottom. Not because "statistics" like "oh on Friday statistically higher moves"
It's because of the DOV auctions
Hope this was an eye opener
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