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GFC war time stories (options)

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Fox

Whale, shark, eel, plankton
Joined
15 August 2009
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Hi all,

I started dabbling in options sometime after July this year. As such, I missed out on the fun of the GFC period where vols reached historic highs. Can the seasoned traders here who lived through the GFC care to share their war stories during this unique period? For example, was it highly profitable? What were your bread and butter strategies during such high IV scenarios? Or did you stay out of the market altogether?

What happened to index options at that period? Was IV always higher than HV or were there periods when HV exceed IV?

I can only imagine that during the periods when IV was much higher than HV, and therefore option sellers had a field day. Did short vega spreads like butterfly and low prob ICs fail miserably as IV's climbed higher by the day? Please do tell.

And lastly, as an option trader, do you yearn for those days again?
 
Hate to be boring but it was buisness as usual for me. Stuck with my low prob ICs which were trying to say the least but fortunately I had some calanders & diagonals on at the right time to offset any colateral damage. I had just began using built in added protection when opening my ICs, so my risk graphs were pointing upwards (this helped heaps). If it was'nt for these and adjusting I don't know what the outcome would've been.

I can only remmember at the time October being particulary rough and then thinking afterwards 'that was'nt so bad, glad i'm not in stocks'.

As you know the moves in the indexes were huge & so was IV, my protection was paying for itself but with IV being what it was buying more protection was costly, so I chose to reduce size & a go a few months out late in the year after IV started to calm down a bit.

I would'nt say I yearn for those days but I did appreciate the premium & being able to go much further out.
 
Concur with Grinder re. the high vol. For periods the market had priced too much equity risk premium. It's been the only time that I have been short otm gamma.

Personally did not trade the index much - focus shifted to long/short tech stocks & financial etf's. So didn't play with options as much as with spot. If there were any plays, vol bets were offset with high freq - rather than waiting til expiration.

At the time, I recall watching and speaking to otc derivatives traders who were very happy with the level of vol and activity in the market. They pulled in one month what normally took one qtr.

I do remember getting burnt on some otm SPY time spreads , but would welcome for the persistence in high vol after Oct
 
One fine morning in 08, I decided that the GFC was over and decided to buy some calls. Baulking at the IV, I opted for some barrier warrants instead.
Long story short - Fastest loss I ever had.
 
Grinder said:
Hate to be boring but it was buisness as usual for me. Stuck with my low prob ICs ...
Click to expand...
Pretty impressive that your low prob ICs survived the GFC. That traumatic period must have reinforced your confidence in your built-in protection and IC management methods.

Grinder said:
I can only remmember at the time October being particulary rough and then thinking afterwards 'that was'nt so bad, glad i'm not in stocks'.
Click to expand...
Have to agree with you about stocks. All I could do was watch helplessly as my long term portfolio of shares fell into a bottomless pit. The fact that you can navigate the GFC, survive and prosper, illustrates the robustness of options trading if done correctly.
 
I don't want to speak on behalf of WayneL, but remembered when he cleaned up with a spread of backspread characteristics on the day of the first failed bailout decision.

I also recalled his analogy of becoming an assassin and jumping in and out of the market slitting throats instead of his usual conniving [j/k] self lol

haha, position trades were difficult to handle...kudos to Grinder for managing
 
Fox said:
Pretty impressive that your low prob ICs survived the GFC. That traumatic period must have reinforced your confidence in your built-in protection and IC management methods.
Click to expand...

that it did. Can't say the ICs on their own would have survived though. Took alot of offsetting and manouvering of other positions. Interesting how having some extra vega at the right time can make a world of difference to a portfolio. If I had just slapped on a bunch of ICs, whether they be high or low prob & just let them be, i can tell definitely say I would'nt be trading today.

What it did teach me was risk mangement & position sizing are imperative in times like those.
 
I am finding it difficult to model the built-in protections because I use Hoadley. Hoadley's OST only allows 6 legs to be entered. The only solution I have at the moment is to use Hoadley's OPM but that is a bit cumbersome. How do you guys cope with modelling so many legs?
 
sorry for a dumb question... but what are ICs? I assume it as in option strategy. In-The-Money calls?
 
Thanks for that... It dawned on me what IC was 2ms before I saw your reply.

I've just started a thread asking about peoples experiences with ICs. Obvisouly there's a few people doing it.

I am unaware of the effect of vega on ICs, so that's a starting point for me I guess.
 
Not with IB so don't know, however theres a tab on the far right that looks like an avenue to do so, best give it a try or just post a question on the noticeboard.
 
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