YouSaid · the spoken record

Imran Lakha

lines on the record: 91
first: 2022-03-17
most recent: 2022-03-17
sittings or episodes: 1
sources: podcast

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“So, this is something I run every couple of months. It's called an options trading bootcamp. It's one of my offerings. It's basically you've kind of shown a lot of the slides there. It just covers my whole syllabus in options really. It's targeted towards how retail people can use options. I go through all of the fundamental basics. I go through a lot of practical stuff like we talked about hedging, restructuring hedges. Talk a bit about VIX products as well. And I showcase some of the platforms out there as well that we use as retail traders to trade options and some of the analytics tools that you can use. I'm also pretty big in crypto vol, as you know, so I walk through there a bit, which is the big options exchange on crypto. And I showcase some of Genesis volatilities analytics products, which are partners of mine. But yeah, got some pretty good feedback in general from the bootcamp.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Comes a time when the volatile volt just goes crazy, the liquidity isn't really there, right? And that's why the volume volume is so high, because vol is gapping by tens of volunto points, right? Then you're better off just staying away, right? And letting things settle down, letting things figure themselves out. If you desperately need to trade the asset, do it in a size that you can stomach some of the volatility and do it from a more longer term perspective, it's probably safer, and then you just let the options calm themselves down, right? So I think that's probably the best example of when not to use them.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“That's a great question. I think when the vola volle is so high, I mean a good example is probably the likes of wheat, right? What are you going to do with wheat options right now? Vol was at 200 last week. Now it's at 100. You want to buy it? You can go at 50 tomorrow. You could go back to 200 tomorrow, right? We have no bloody idea, right? So I think it's one of those where...”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Directional leverage number four is different, more complicated positions in exposure to volumes. So, those are the four reasons why people could think about using options. Imran, when should people not use options? What are some reasons when people buy an option, but they shouldn't? You think, actually, it's a mistake. You really should just own the stock.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“If you just measure pure, that's a great question, Jack, as well. But if you just measure, it shows you're paying attention. I like it. But if you just measure close to closed realized volatility, right? That's what that's called, right? You would miss the intraday movement, right? So you would be like, well, the asset didn't move today. You know, yesterday is 140. Today it's 140. Nothing's going on. And instead it's had a round trip up to 180 and back, right? So the only way you can capture that is with some other volatility measures, right? Which factor in the highs and lows of an asset. There's various measures of realized volt. There's simple close to close, which again is, yeah, like you've just said, doesn't really capture everything. And then there's other measures that are a bit more sophisticated.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“An asset's been moving over the last month with how much it's expected to move over the next month, then it kind of makes sense to look at trailing 30-day realized versus one month implied.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“So, what you're basically asking there is like, how do you differentiate the change in the assets price to the volatility of the assets price, right? And that for that, you need to another metric called realized volatility or historical volatility, right? So what we do, what we have as options traders is obviously the implied volatility is talking about the future, right? It's trying to predict. We don't know what's going to happen in the future, right? But what we do have is the past. So we have data of the past. So what we can measure is historic volatility. And what we typically do is we look at the daily changes in the market, right? And we calculate what is the realized volatility for the last 10 days, 20 days, 30 days, 50 days, 100 days, whatever it is. And we call that the rolling whatever day volatility. And if we're looking at, if we're trying to compare how much...”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Just an annualized standard deviation number. Right, so all we're doing is we're saying, and the easiest way to think about it is if we divide it because annualized and markets are open around 252 business days in a year, if we divide it by the square root of 252, which is around 16, whatever volatility number you just quoted, if you divide that by 16, then all that's saying is that is how much percent a day the asset is being priced to move up to that expiry point. So if the volatility was 16%, you divide 16 by 16, you get one percent per day is the market's implied move for this asset if it's trading on a 16 implied vol. If it's trading on a 32 implied vol, 32 divided by 16 is 2, it's expected to move 2% per day. It's a pretty simple rule of thumb called the volatility rule. 16”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Time, right? So that's the thing. There is a bit of an anchor that intraday volatility does provide a bit of an anchor to that implied vol and kind of stops it from collapsing if there's enough movement, basically.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“We are looking at a 20 to 25 volt floor in the VIX, I would say. You know, maybe even higher. But that's kind of, you know, on the low end, that's where I think we're going to definitely see a lot of support in the VIX and a lot of support involved. And then you look at the intraday moves. People look at, oh, you know, realizes here, implies here, but the intraday swings matter, right? And the intraday swings are pretty enormous right now, right? I think last time I checked S&P ATR average true range was around 100 points a day which is nearly two and a half percent. I mean that equates to a 40 volt, right? So close to close realize on the S&P might be 25 but if intraday including high lows is like 40 how low do you see the vol really going right because people can buy that gamma if people can buy that gamma at 20 they just need to trade it intraday and they'll make all their theta back and they'll have a great time”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, a lot of people are making a big hoo-ha about the volley coming down after the Fed. And if the Fed was the only kind of catalyst, then that would make sense, right? But we are in a different world, right? With the stuff going on with Ukraine and Russia and now China stepping in and potentially giving them some sort of military aid and the mass exodus out of Chinese markets. And then you look at commodities and the potential liquidity stress coming from commodity markets and what's gone on there. There's so much under the surface to create volatility that, yeah, we might get a small move down in VIX and Vol post FOMC, but it ain't going to be game changing, right? I don't think so. Whereas last year the Florin VIX was around 15. I'm thinking until Russia, Ukraine gets resolved, and God knows when that will be, right?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“So, this interview, I think, will air on Thursday, March 17th in the morning. Realized volatility is likely going to be higher, but implied volatility is recognizing that. It's pricing it in. How are you thinking about tomorrow as the volatility event?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“To play a more deep, more meaningful move lower in markets as it becomes apparent that this withdrawal of liquidity from the Fed is coming. They're not going to do what they normally do, which is bail out the stock market because their hands are a bit more tied, basically. That's what I believe. I might be wrong. That's my view. I think a lot of smart people, smarter than me, kind of agree with that view, that we've never seen the feds' hands tied the way they are, given the inflation backdrop, given the political mandate out of Biden, and just that setup. We might be looking at a 1973-74 style stagflation world where S&P is down 40%. Very possible.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“The tactical stuff, there you know, it doesn't take a lot in terms of news flow out of Russia to make the market squeeze 5 to 10% quickly, right? And we saw that already in Europe last week without any definitive news, really, other than saying, okay, they don't want NATO membership anymore, but and they're in talks, but there's nothing really coming out of the talks and Europe squeezed 10% last week, which was insane, right? So it just shows you the squeeze potential in the market. So I do think there's squeeze potential here. I don't know what headlines going to drop to trigger that squeeze, but I'm definitely on the lookout for that squeeze. I'm not going to lean too short tactically to get hurt by that squeeze, but what I would do is if that squeeze comes and we manage to get back towards 44 to 4500 on the S&P, then that is a great opportunity to start positioning more strategically bearish, maybe with September type options.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Butterfly is just a three-legged structure where you buy a call, you sell two calls with a higher strike, and you buy another call with an even higher strike. And it says gives you a positive payoff on the upside, but in a certain zone, right? It picks a zone of profit that you are targeting by a certain maturity, and you get some pretty nice leverage when you do those trades, because obviously it's a very specific view. There's a lot of outcomes that won't get you in your profit zone. And so you're getting you're getting quite decent leverage to play that scenario, basically, right? So I've been using, as we've been selling off, probably from around 44 down to 4,200, I've been trying to do some bullish structures, throw a little bit of premium on the table to get exposure to a bit of a squeeze. It does feel like most of the market has got very beard up for obvious reasons. Don't blame them. I'm beard up as well, which is why I'm 25% in cash. But in terms of...”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I think in general it's really a bit too late in the game now to be buying puts and trying to play the downside via options or that you kind of miss that boat. Like I say, the way I've kind of got myself defensive is just by raising more cash in my long-term portfolio, right? So rather than buying puts against my and being invested, I just lightened up, right? And I was happy to hold cash. So I think that's been a good generally a good trade. On the way down, I have, because I've been in cash and I've been pretty light on equities, I have been trying to deploy a little bit in call premium, more cool spread and cool butterfly premium rather than cool spread.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“And what's your view on equities, and if at all, expressing that view via options? You're saying it's hard to monetize these puts because you buy the implied volatility of 30, it goes down, you make money via gamma via delta, but the implied volatility is now at 15 because now you're at the money. How are you thinking about puts on the downside? And also, what about exposure on the upside? Are you owning calls? Are you owning the underlying, owning puts, which is kind of the same thing as owning calls? How are you thinking about that?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“I'm just kind of letting it come to me basically, right? The more it sells off, I throw a little bit, few more couple hundred basis points into TLTs and do it that way, basically, right?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Would have performed a bit better than they have lately, and they're doing horribly, which is why I'm glad I've got a fairly low allocation in bonds. I have been averaging into some TLTs over the last six to 12 months, but I've done it very, very slowly and carefully because I was well aware that yields had some serious room to go higher, you know, that kind of idea that we could go into a more deflation type dynamic where growth rolls over, right? And inflation does finally peak. I did sympathize with that view. I think this kind of Russia situation has kind of maybe changed the calculus a bit in terms of how persistent inflation can really be. But if we did go towards that more deflation dynamic, then bonds I would have thought would perform okay, which is being echoed by people like Darius Dale and Raoul Powell. But I was careful. I was careful not to get too big in the bond trade, right?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Gears. I made it in a week, so I was comfortable taking a lot of that off, shaved off some of my copper, shaved off some of my uranium last week. So I've still got them. I've just got a little bit less of them, but actually I've kind of got the same percentage allocation that I had before the commodity rip happened. So I've just kind of nicked that performance, banked it, put it into cash, and I'm waiting. I'm waiting to see if we pull back some more incommodities over the next two weeks that I want to get back involved. I will then put some of that cash back in to some of those names and I would have just flipped them, right? I would have just traded around that volatility. Otherwise, I'll wait a bit longer and I'll see what I want to do with my, I've got a pretty high cash allocation right now, something like 25% in the long-term book. And I'm not in a rush to deploy it right now. It feels prudent to have some cash. I think it makes sense. You know, you would have thought bonds.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Owning ETFs primarily. I had a portfolio of ETFs across metals. I had things like copper, nickel, tin, aluminium, a nice little basket of those. I had some uranium stocks. I had some uranium ETFs, things like that. And I had a bit of gold as well, right? I didn't really play around with my gold because it wasn't that massive the position anyway. In terms of commodities though, through that rising commodities, particularly the metals, they went a bit nuts. Nickel, you know, kind of tripled in two days or whatever. So I was able to monetize that spike and take some of my nickel off. So I took about two-thirds of my nickel off at reasonable levels. I didn't get the top because that wasn't a tradable price. And even if you had traded it, you would have got cancelled. But, you know, I made enough out of monetizing nickel. I made off that nickel position. I made what I would expect to make in a matter of”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, look, I mean, the reality is when Vol's winging around like this, it's kind of a hot potato, right? It's quite a dangerous thing to trade options, even if you're an options expert, right? I mean, you have to be so bang on with your timing because, you know, in an asset where the volume... I don't have a ton of edge calling the timing. I might have edge in saying if you wanted to get bullish, what would be the optimal structure? If you wanted to get bearish, what would be the optimal structure given the volatility setup? What I don't have enough edge on, and I'll put my hands up, is calling the timing on these crazy geopolitical swings, right? So for me, the way I've played it is I had a reasonably healthy allocation in my pension portfolio to commodities. that made me some pretty decent money and the recent move, obviously, right?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“And how are you thinking about that as an investor? You know, the simple option is you could buy something like USO. And historically, USO has been a horrible investment a lot of times because it's in Contango, so you're paying roll yield. Actually, now it's in backgridation, so it's not that bad. But you're a volatility guy, a convexity guy, if I can use that word. How are you looking about putting on trades to express your view that commodities will go up?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“But is part of that de risking that we're seeing across the space, right? I don't think the fundamentals have changed that much, right? I don't think the supply demand fundamentals have changed. Yes, there's an element of if we're going into a recession, there's some demand destruction and all that. I don't know. I'm not buying that story right now, right? I think we would need to wait a bit longer to see that demand destruction really come through. But the acute supply shortages are there for all to see. The bottlenecks are there like China have locked down on the back of COVID. So you've got more supply disruptions coming. Personally, I think after the end of March, maybe we get another one, two weeks of this type of price session, but after the end of March, I think commodities are going again. I think there's a second phase of this as people realize just how much the picture has changed on the supply side and there's just going to be shortage.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Come back to like 100, which isn't cheap, obviously. But then the likes of oil got to 80 volt, pull back to around 60, gold went to 30 from 15. Is now back to around 20. So a lot of these volts are given back a lot of their spike, right? Now that's the vole market pricing in some more stability. I personally think there's been a bit of de-risking in commodities due to this increase in increase in margin requirements. Now, you know what it's like? The same thing happened in the GameStop scenario, right? Margin requirements went up everywhere because the assets were doing crazy stuff. So everyone just had to shut their positions down pretty much at the margin. They're just like, there's no point trading. A, I don't know if my trade's going to get cancelled, like the LME. B, I've got post a load more margin than I used to. I might as well just de-risk the book, right? So I think what we've seen in the last week with commodities crashing back down, both involved.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“But the big thing in commodities is that the skews to the upside, right? Whereas in equity vols to the downside because markets tend to crash down and grind up. Commodities kind of do the opposite. Commodities crash up on supply disruptions and then they drift back down. So we've kind of seen exactly that recently on the Russia invasion. Obviously the grains really went nuts. And then so wheat went nuts, nickel went nuts. They've all retraced quite a bit. So they got to like 200 vol plus.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Went to 65, which is pretty crazy, right? And that's what they're telling all my subscribers to my membership service. Like, this trade selling European vol, buying US volt looks like a trade here, because that spread doesn't really live at 25, right? That spread lives maybe at 5 or 10, right? But 25 is very extreme. So these are the type of things, again, these are type of things you can do with options, right? You can take on volatility positions relative. You can say that vol's expensive versus that one that's cheap and I think they're going to converge because over time volatility is a mean reverting asset, right? And that mean reversion property of volatility, you have some confidence to volitions because of that mean reversion, right? When the VIX goes to AE, you know it's not going to stay there at some point it's going to come back down. You have fairly high conviction of that. So then you look for ways to sell volum via various strategies.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“That's the difference. This time round, Solos been fairly orderly, the realized bowl has gone up, but it's gone up in a fashion that has kind of allowed volatility to reprice with it. And, you know, there's not been a need for vol to be up 20 vols in a day, basically, right? Yeah. In Europe last week or the week before whenever we sold off aggressively 10%, there was some of that. There was some panic, right? And the V stocks, which is the VIX equivalent.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“The scenario where, like, the March 2020 scenario basically, right? So early March 2020, Voles were kind of 15 to 20 range. You're buying downside puts on a 30-40 vol, right? We went down there. The vol went to 80, right? It didn't go to 30 or 40. It went to 80, right? Because the moves were so brutal, right? We weren't selling off on a bad day 2-3%, right? We were selling off 10% in a day, right? So the volatility reflected the fact that those daily moves were just insane, right? That's when Vol really works to the downside, right? When you get the moves that are so big that actually Vol isn't 30, 40 like it was supposed to be if the market sold off, it's now 80. Yeah, and that's where you really kill it on your vaguer positions because the volt's doubled, basically, right? So that's.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“It's a blend of all It's a blend of all the strikes. And I think what you're alluding to is we'll take a look at the volatility skew graph. And on the downside, implied volatility is high. You have put skew. So you buy a put when the S&P is at 48.50, 47.50, you buy it at 41.50, implied volatility is at 25. Then when the market goes down there, suddenly your put is at the money. And now it's a volatility of lower, even if volatility has risen. My question, Imran, is how would if you buy a put, you buy an out of the money put, isn't that always going to happen? In what environment does that not happen? Like, and you said, oh, oh, it hasn't been Armageddon, it hasn't been...”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“It might not be a 40 50, but it would have been higher. It would have been 2530 or something basically, right? So we're now down there. Volt is at 30. That's exactly what the thing was priced to be, right? So in reality, the VIX move has been purely Delta. It's been purely the fact that we've moved out the money strike from 48, 50 to 41.50. It's just the market, the whole market was smart enough to have already priced it and the VIX is just reflecting the floating move from 48.50 to 41.50 that is now a new strike. It is a much lower strike, which was already priced at a higher volt. So that's the point I'm trying to make, that you have these, there's a big difference between what the VIX is doing and what fixed strike optionality is doing and the P&Ls associated with those. Sure.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“I'm saying that the VIX going to 39 reflects a higher level of volatility, but it doesn't mean everyone who's long puts has made loads of money necessarily, right? That's what I'm saying in the Vol space. Because the actual, because what we've done is we've gone from 4850 in S&P. To 4150. That's a 700 point sell off in SP. So the at the money vol up there at 48.50 might have been 15. You had priced back then March options and you had said, Well, what's the implied volt for a 4150 put? When the at the money vol is 15, what's the implied vol for a 4150 put, which is 700 points lower?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“So, how come the Vix is, you know, I mean, now it's at 30, but it was at a high of what, I don't know, 39 or something like that. When I see a VIX at 39, I think, uh-oh. The apocalypse is here, but you're saying it's not. Why is that?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Moves to be unexpected, right? You need people to be like, whoa, you know, what the hell was that, right? That was way beyond my expectations. Yeah. But right now people are just expecting this market to eke its way lower as the market reprices what the hell's going on, right? In terms of the Fed, you know, pulling liquidity, obviously all the stuff that's going on in commodities and the idea of recession kicking in. Certainly in Europe, maybe even across the globe, you know, but the market's digesting it slowly. It's not as just the sudden one-shot repricing. And it's those one-shot repricings where Vole really works.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“People have been ready for it, right? So there hasn't been this sudden we didn't see that coming, right? We didn't see that coming shank in markets that shocked people. That happened with Russia, Ukraine, right? That happened in commodities. It happened in European equities, which saw a massive Volspike last couple of weeks, right? But in S&P, we haven't had that, right? We've had actually, yes, the market's gradually being getting comfortable with the Fed, getting tighter. There's been a bit of a rush back towards US equities out of things like EM and Europe, China and Europe, things like that that are now looking toxic as hell. And so why should that downside volume Europe be exploding, right? That's not been, it's been too orderly a sell-off for that stuff to really explode, right?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“We then bounce, we then sold off again in December. And so you had a couple of chops around towards that 4344 area in S&P that got people spooked and got people ready for some downside. So you probably had a fair amount of protection buying and de-risking going on really late last year. And then we've had obviously more hawkish rhetoric come out. markets have sold off.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“And the VIX goes up, but the VIX strike volatility of the option that I own hasn't budged or has even gone down, which we have seen happen, then I make no money on Vega. I make a bit of money on Delta maybe because the put is short delta, but the whole vulgar component that I'm looking for, that convexity that you talk about, that really explosive leverage that optionality gives me in a crash done nothing for me, right? So that's something you've got to be aware of. And in that world, and why is that happening? Well, I mean, you know, we crashed pretty. Probably the most convex move involved where we saw the biggest pickup and it was from a low volt base was Thanksgiving, right? Last November, Thanksgiving, we had this sell off out of nowhere that really spooked markets.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“It hasn't been that for a year, right? But I mean, it was that for many, many years. It was incredible. It was incredible protection. And that's why risk parity did so well, right? But. Yeah, I mean, in today's sort of market, it's a tricky one in equities, right? Because markets have been trading down and it looks like volatility is going up a lot, right? You see the VIX at 30-something. You're like, oh, wow, people are long volume must have killed it, right? But I think you've spoke to enough people to know better than that in that if you've owned fixed strike volatility, right, which is owning vanilla options on the S&P, even though the market's traded down, the implied volley of the options that you own and that's really what determines your Vega P&L, what the VIX is doesn't determine my P&L if I'm long a 95% put on the S&P. What matters to me is what the vol of that put does. And if the market drifts lower”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I'll finally put on this final chart whether your view is short, delta, long delta, long Vegas, short Vega, and the different positions you can go on. This is a wonderful chart. I don't think we'll have time to get into it now, Imran. I want to sort of just delve into the macro. So we talked about why you would use options. How do you think that what we've talked about so far has put in place over the past two to three months? Because you've had a big time sell-off in stocks and in bonds, which is interesting because the correlation there should be negative, but it's been positive. Bonds really have not served as a protective put. People talk about bonds as a positive carry put. It's a put that... Pays you, but it actually has not been that”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“And then the market dumps that thing blows up in value, okay? Because not only do you go intrinsic, the vault explodes, all sorts of stuff, all hell breaks loose, and you can sell it at a price that reflects that it's done three, four, fivex or whatever it's done, basically, right? So it's that ability to sell it out in the crash, monetize the protection. That's what the outright put gives you, and that's what the put spread kind of misses out on. And the reason why is because you tried to cheapen it up. You were tight with your money. You didn't want to spend it. Right, didn't want to spend all your theta, you were being tight, so you shouldn't expect to get the same benefits and rewards in a crash that the outright put gave you basically. Everything's a trade-off in options, right? That's what you've got to realize.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“How much does the option value increased by? If you're going to buy a hedge, you want it to blow up and make multiples of what you spent on it, right? If you buy a put spread that's promising to make 15% and it costs you 3% to buy it, it's promising to make you five times the money, three to 15, right? But if the market dumps tomorrow and it only makes you two or three times your money, it's not doing what it's promised you, right? Because we have to stay down there for another three months, right? Let's say the three month put spread. Yeah? Looking at the outright put, the 95% put, you know, if that thing costs you whatever 5%.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Would be worth 15 and it'd be worth a little bit more because the time value would still have some time value in it basically even though it was quite out it was quite far away it would still have some time value in it so right It's not about the risk of whether we're going to go up.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, and the issue that you have is you spend X amount on the put spread, the market absolutely crashes down to your short strike. Because the implied volume on your short strike probably does spike, don't know how much, but it probably spikes, it has a load of time value on it, and you're short that option. So if you're trying to unwind that put spread, you're going to be monetizing, selling out your option that's deeply in the money, but you'll be buying back this option with loads of time value on it and actually is quite a high premium now, which means you won't be monetizing that 15% that was promised to you, basically, because of that cost of buying back that short option, right? Whereas had you just bought the 95% put by itself and we dumped down to 80%, you would get the whole 15% intrinsic value of that option that the value of that 95%.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“It could rebound. I should say, yeah, that's your risk is not that it goes down further and that you're short of put option, you're covered because you own the longer data, the more in the money put option. Your risk is that it bounces back.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“The option that you're short isn't worth nothing, right? It's got a ton of time value on it, basically, right? So the put spread is the kind of trade that wants to go down, but it needs to stay there, right? Because, and what happens normally when we crash 15%, do you think the market's still going to be down there in two or three days or not?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's not the logic. The logic isn't that the volatility on that downside strike is definitely going to spike higher. That's not the logic. Just think of it this way, right? The put spread is 15% wide, 95%, 80%, okay? Right. The market goes down to 80% tomorrow is the put spread going to be worth 15%, right? Which is the most it can be worth. And that's what it would be worth at expiry down there, right? If we go there tomorrow, but it's a three-month put spread, is it going to be worth 15% tomorrow, do you think?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“There we go. So you're kind of sandwiched your hedge in between those two strikes. You alluded to something earlier, which is when you have a put spread, it's hard to monetize because you're short skew. That's because you're buying a put option at 95% of the spot price, but then you're selling a put option. I don't know, 75%. And the 75% put option more out of the money is going to have a higher implied volatility. So when the market crashes, that's going to spike higher. And that's skew, right? Or am I wrong?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“That scenario in most things. So you say to yourself, what's a realistic sell off? How much might it go down? And once it's down 20%, I don't mind my protection kind of ending there because I'm happy to be long in the market down 20%. And so you do a put spread by buying something like a 95% put and maybe selling something like an 80% put.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, we didn't talk about the Greeks and things like that, but it's fine. We don't need to go into all the detail. But the idea just in simplest terms is like the put's too expensive, right? The implied vol might be high. You know the odds are you're going to just be burning that premium and you're never going to see it again and you don't like that aspect of it. It's bleeding theta at a very fast rate. That's the time decay because it's on a high volatility. So you say, how do I get protection on? But how do I cheapen it up? And how do I have something that I think's got much better odds of surviving and actually not just evaporating in two weeks and actually holding some value basically, right? So that's why you're going to a put spread because you're saying, well, I'll buy a put, but I'll sell a put behind it with a lower strike. So I won't have unlimited protection if the market was to go to zero, right? But there's not a lot of point in here.”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT
“A protective put, you buy it struck at 95 in the money, stocks at 100%, you buy it at 95. If the stock crashes to 50, you make a ton of money. If it crashes to 30, you make even more money. You uncapped to how much money the puts make when it goes down. That is unlike the next thing, which is a put spread. What is this and how is it different than just a naked?”
2022-03-17 · Forward Guidance · Options Trading for Macro Investors | Imran Lakha · IDENTIFIED FROM THE TRANSCRIPT