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Educational Articles

Leonardo Valencia

This page features periodic articles by Leonardo Valencia on better understanding options trading and the methodology and lexicon underlying his Gamma Optimizer.

 

Live Video Fri Jun 23rd 2017

If any of you are interested we can do live video at 3:00PM (EST): https://www.youtube.com/watch?v=1mj4BkWG1EM We can go over the open positions and the expectations for them and also over a few of the proposed trades today including new GDX bullish positions and TSLA too. Of course also answering any questions you might have.

Position Watcher App Fri Jun 23rd 2017

Finally, after so much pain I managed to solve my realtime data issues for this simple app. Please take a look at: https://gamma-trader.shinyapps.io/positions/ There you will find a very basic position layout that should update every 30 seconds. Please play with it and let me know your feedback. I'll keep polishing this based on your comments.

No Live Video today. Fri Jun 16th 2017

My throat is very sore today and I can't really modulate many words so no point on having live video if I can't generate the sounds :). If my voice recovers I'll try to do a recording over the weekend. Thanks for the patience folks.

Setting up a "capped" risk reversal Thu Jun 15th 2017

We have been trading a few risk reversal in the room, well at least our own variation on the general risk reversal and I know that some of you are having trouble constructing the order with your retail software. The easiest way to do this is if your software allows you to enter the legs one by one (like IB for instance). However if you are using something that has predefined templates you won't be able to find them on the list.

Video Channel Wed Jun 14th 2017

For those of you looking for all my videos here is a link  to my YouTube channel: https://www.youtube.com/channel/UCHwDrnVyfs5uYmvAo87QtPw If you want a particular video to start with I would recommend watching Introduction to Gamma and Convexity: https://youtu.be/mk-diJbRfMk

Recording of Live Video Fri Jun 9th 2017

For those of you that missed the live video here is a recording for it: https://youtu.be/TxlGmK2yD0g

The vanishing of Implied Volatility Fri Jun 9th 2017

You might have noticed that lately I haven't done any fancy trades at all, just basic long gamma/short gamma trades: verticals, a few flies, a couple of calendars and that is it. I haven't done any more risk reversals, or weird back ratios, or even contingent options. The main reason is that implied volatility in SPX has been falling consistently all year long to probably the lowest points in the history of the market.

Live Video Fri Jun 9th 2017

Here is the link for our live video today at 2:30PM: https://www.youtube.com/watch?v=TxlGmK2yD0g Remember to bring all your questions there. This week we have plenty of material to talk about as I'm sure you have questions about the new trades we are embarking now.

Improving the Naive strategy Thu Jun 8th 2017

I can see that some of you are already executing the naive strategy so here are some tips to improve the edge even without the aid of complex neural models. The statistical analysis of the trade is actually very conservative because it is only measuring the performance after a 5 session window, so in other words the stats only reflect those instances when the move was > 1% by exactly the close of business of the 5th session.

The edge of the ATM binary trade Thu Jun 8th 2017

I have posted already a few ideas with the ATM binary trades which look very good and can work really well if your thesis is correct. But it is good also to see a more detailed analysis of them. For instance almost all of them are fair trades, what I mean by *fair* is that the edge of the trade is 0.0 (no edge whatsoever). This is very different to the systematic Naive and smart trades in SPX which actually have an statistical edge on them.