Most degenerates here seem to think mostly in a binary form for their options. I buy calls if I think upsies, and puts if I think downsies.
Well, what if I told you put holders can make money when the underlying moves up, and call holders can make money when the underlying moves down? In fact, what if I told you puts and calls can be used interchangeably?
Nonsense you say. My calls expired worthless on shit meme stock when it drilled. Wer tendies then?
Well, the reason why your money vanished is because you ignored the important variable of volatility and that you as the option holder, should get paid when the underlying moves by being long gamma.
So how do you get paid when shit meme stock drills and you have calls? Or when retail pumps shit company and you have puts?
It’s simple, you need to be trading more delta neutral. This involves looking at the delta of your options and going proportionally long on the underlying if you’re holding puts or proportionally short on the underlying if you’re holding calls.
Let’s give an example.
WSB seems to have been pumping shit stock XYZ lately, so I think it will continue to go up and I buy the weekly ATM calls with a delta of roughly 0.5 and await tendies.
This is where most of the WSB degenerates stop and when the shit stock dumps, no tendies. But being the smart trader you are, you await and plan for a possible dump and short the stock, shorting roughly 50 stock for every contract of ATM calls you bought.
Now when market opens on Monday and you realize shit stock XYZ was another pump and dump, your calls expire worthless but you profit off the dump with your short position. Alternatively if shit stock XYZ is still in the pump stage and the underlying goes up, your long ATM call position covers your short position and you still profit from the remaining long position of your calls.
You don’t care which direction the underlying moves, as long as it does move. You sell short as the underlying moves up and the delta of your long calls goes up. You buy back your short position as the underlying moves down and the delta of your long calls goes down.
Those who understand put call parity know this strategy is exactly equivalent to long puts and going long the underlying, ignoring friction factors like liquidity or interest rates.
You could have made money watching shit stock XYZ swing up and down on Robonhood. Instead, you simply held your calls to expiring worthless watching thetagang eat your lunch.
Next time, make sure gamma is working for you
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.