Script to track put collar spreads
Updated
For all you weekend script warriors out there.
I'm working on a new script to track the greeks for put spread collars like JHEQX
My thought is to publish a script that can automate tracking of these massive collars and generate greeks, strikes and future volatility predictions.
I want to create trading strategies based on selling while negative gamma and buying while positive gamma
I have Black Scholes and implied volatility working close to my reflect my brokers.
I will publish the completed script when I get iv working properly.
There needs to be some public light shed on these strategies.
Why?
These strategies will continue to drain all liquidity from the markets until there is a liquidity crisis.
You're Crazy. No Really, Why?
Let me break it down...
This strategy is 1 of 3 by a single prime broker.
My guess is there are a lot of other big hedge funds doing a very similar strategy.
Every 3 months, the strategy is reset.
Every 3 months, a big liquidity withdrawal is being made without anyone even noticing.
Market liquidity pays for the premium of this strategy.
O'Rly?
This strategy is insurance for 20 billion in assets.
The premium for the long put contracts on 20% downside for 20 billion is ~550 million dollars.
The problem. ~550 million in credit sold by market makers (dealers) with no intent of taking on the risk.
Market above the short call, it's absorbing QE.
Market below long put, 10-20% draw down in S&P 500
To see the results of this, compare what happens when the strategy resets during QE and QT.
Imagine for a moment the trillions in margin and equities being used to draw income, yield and premiums from markets.
IMHO, this strategy is the Credit Default Swap of 2020s
The fed has no choice now except to continue raising rates with relentless QT to reduce its balance sheet.
This bubble may be so big, your children's kids will be paying for it.
I need to call my mom.
I'm working on a new script to track the greeks for put spread collars like JHEQX
My thought is to publish a script that can automate tracking of these massive collars and generate greeks, strikes and future volatility predictions.
I want to create trading strategies based on selling while negative gamma and buying while positive gamma
I have Black Scholes and implied volatility working close to my reflect my brokers.
I will publish the completed script when I get iv working properly.
There needs to be some public light shed on these strategies.
Why?
These strategies will continue to drain all liquidity from the markets until there is a liquidity crisis.
You're Crazy. No Really, Why?
Let me break it down...
This strategy is 1 of 3 by a single prime broker.
My guess is there are a lot of other big hedge funds doing a very similar strategy.
Every 3 months, the strategy is reset.
Every 3 months, a big liquidity withdrawal is being made without anyone even noticing.
Market liquidity pays for the premium of this strategy.
O'Rly?
This strategy is insurance for 20 billion in assets.
The premium for the long put contracts on 20% downside for 20 billion is ~550 million dollars.
The problem. ~550 million in credit sold by market makers (dealers) with no intent of taking on the risk.
Market above the short call, it's absorbing QE.
Market below long put, 10-20% draw down in S&P 500
To see the results of this, compare what happens when the strategy resets during QE and QT.
Imagine for a moment the trillions in margin and equities being used to draw income, yield and premiums from markets.
IMHO, this strategy is the Credit Default Swap of 2020s
The fed has no choice now except to continue raising rates with relentless QT to reduce its balance sheet.
This bubble may be so big, your children's kids will be paying for it.
I need to call my mom.
Note
I need to work on labels.Blue = Strategy Delta
Green = Strategy Gamma
Red = Delta Difference from previous close. The amount a MM would have to sell or buy delta for the previous days move.
Note
Correction to the conclusion I made about who pays for the strategy. This strategies premiums are paid for 4 different scenarios:
1) Call ends ITM +0.5 Delta = Quantitative Easing
2) ends even at 0 delta = Break Even. Prem paid for Credit.
3) ends > long put ITM = Buyers Assets losing value ~ the same
4) lower... complete global markets meltdown.
Note
Monday -> Friday will be a big tell.1) Either deltas going from -0.2 to -0.5 really fast.
2) Slow chop Vol compression higher into Friday close.
Note
Yesterday was a tense period for markets.Strength in DXY was weighing on equities and Yields punched the afterburners.
But nothing stops this train from reaching 0 delta by Friday.
Note
working on another script that supports VANNA or VEX (vanna exposure).The current position dealers don't want in the money is the 3580 Put. As IV increased yesterday on news, dealers were selling as the put got closer to In the money.
Last night and this morning is a perfect example of VEX. As implied volatility fell overnight, dealers buy back delta reversing the selling pressure while IV was high.
Note
As I review the implied order book I'm narrowing down the flows to follow. To say nothing stops this train was in haste.Here is a clearer picture of VEX. Implied volatility still has a firm grasp on JHEQX 3580 long put.
Either we start selling off to 3580 or Vanna rally again for market close / Overnight.
Note
and thats a wrap everybody.Put nearly to 0 at 3727.75. Woah
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