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Level 5 of 5
Expert Traders
Who it’s for: Experienced traders looking to master professional-level concepts.
Goal: Teach delta-gamma-vega hedging, dynamic portfolio neutrality, and market maker-style risk management techniques.
Exper Traders
Synopsis: Completing Level 5 equips traders with professional-level expertise in dynamic hedging, volatility management, portfolio neutrality, advanced arbitrage, and expert risk management. Graduates of this level are prepared to trade alongside institutional traders and market makers with confidence and sophistication.Free Lessons at https://majorwager.app
Lesson 1: Delta-Gamma Hedging
Understanding Delta-Gamma Hedging
Delta-gamma hedging involves maintaining portfolio neutrality by dynamically adjusting option and underlying stock positions to offset risks related to price movements.
Implementing Delta-Gamma Hedging
- Delta-hedging: Adjusting the underlying asset or options to neutralize directional risk.
- Gamma-hedging: Adjusting positions to reduce sensitivity to significant price swings, preserving delta neutrality across larger moves.
Practical Example:
- Continuously balancing an options book by buying or selling stock or additional options to remain neutral.
Lesson 2: Vega and Volatility Hedging
Understanding Vega Risk
Vega measures how sensitive an option’s price is to changes in volatility. Expert traders manage portfolios specifically to hedge against volatility shifts.
Implementing Volatility Hedging Strategies
- Using volatility ETFs or futures to hedge vega exposure.
- Trading calendar spreads or volatility spreads to maintain stable portfolio returns during volatility spikes.
Practical Example:
- Buying long-term options and selling short-term options to hedge against sudden changes in implied volatility.
Lesson 3: Dynamic Portfolio Neutrality
Maintaining a Neutral Portfolio
Dynamic neutrality involves consistently adjusting positions to maintain minimal exposure to directional risk, volatility risk, and other market factors.
Techniques for Maintaining Neutrality:
- Regularly recalculating Greeks and adjusting accordingly.
- Using combinations of stocks, options, and futures to balance exposure.
Practical Example:
- A market maker continuously adjusting their book to ensure minimal exposure to market movements.
Lesson 4: Advanced Arbitrage Techniques
What is Arbitrage?
Arbitrage involves capitalizing on price discrepancies of identical or closely related assets across different markets.
Examples of Advanced Arbitrage:
- Conversion and Reverse Conversion Arbitrage: Utilizing synthetic positions to exploit mispriced options.
- Dispersion Trading: Trading index options against individual stock options to profit from volatility discrepancies.
Practical Example:
- Executing trades to profit from slight mispricing between options markets and underlying asset markets.
Lesson 5: Professional Risk Management
Importance of Risk Management
Expert traders prioritize risk management to protect capital and consistently generate returns, even in unpredictable markets.
Key Risk Management Practices:
- Setting strict position sizing limits.
- Using advanced Greeks-based position analysis.
- Employing stress testing and scenario analysis.
- Regular monitoring and adjustments.
Practical Example:
Applying stress testing scenarios to an options portfolio to understand potential losses during extreme market events and adjusting the portfolio accordingly.
