Shorting NKE: part 24

The magic trick.

Okay. Trick question:

How do you profit when the market moves against you?

If you trade volatility and variance, then you never have this problem.

How?

You keep your DELTA, through active management, below your GAMMA.

You make sure your VEGA is always higher than your THETA.

You make sure you buy puts as the market rises and calls as the market falls to achieve both.

As the market trades various technical levels, one must manage the delta by selling profitable calls or puts while keeping an eye on the implied volatility and the range for the day filtered by the same technical analyses.

Simultaneously one must also check whether the market is trading within a standard deviation of the previous day’s high and low. Eventually these numbers, with a lot of homework, are in your head and you wake up thinking about how a strangle or a straddle will keep your delta below your gamma well.

Karen Gilday, a broker, teacher, mentor out of Chicago who ended up at FIMAT taught me that Gamma is the key. While most people hedge their derivatives in a Black Scholes inspired plain vanilla way, she taught me that everything has a delta. Beyond high school math, she meant that you could find discrepancies and opportunities no matter which market you’re in.

Pile that on top of my history at Chase, where the long-term arbitrage calculator was invented, and the Term structure of volatility work I did before I joined Julius Bar, I prefer to profit from the movement of a market than the direction.

Or take advantage of the discrepancies along every volatility curve while flying in the face of convention.

NKE closed at 73.39 up 2.34. Over 3% higher.

After hours it traded up 6 cents to close at 73.45.