Strategies on Thetabruv

Edge

Mon, 01 Jan 0001 00:00:00 +0000

Edge#

Edge is an overused word, so let me start from the definition I work with: an edge is a positive expectation that survives costs, risk and competition, and whose source you can explain. The last clause is the most important: a positive expectation whose origin you don’t know is indistinguishable from luck, and above all you can’t know when it stops existing — whoever makes money without knowing why will sooner or later lose money without knowing why. This page answers three questions in sequence: where the volatility selling edge comes from; why the professionals leave it to us; how to verify that it’s still alive.

Tail risk protection selling (TRPS)

Mon, 01 Jan 0001 00:00:00 +0000

Tail risk protection selling — TRPS#

The first strategy is the simplest to describe and the hardest to stick to: every day, at the end of the session, sell puts on the S&P 500 expiring the next day, so far out of the money that they almost never get touched, collecting tiny premiums multiplied by moderate leverage and by 252 repetitions a year. It’s a strategy publicly documented since 2011 by a fifteen-year retail track record — the only case I know of that survived 2018, 2020, 2022 and 2025; the sources are on the Resources page — and one I call tail risk protection selling: selling other people protection from the tails. I’ll cover its architecture, the parameters with plausible ranges, the real numbers and the weak points, in that order.

Delta-hedged convexity selling (DHCS)

Mon, 01 Jan 0001 00:00:00 +0000

Delta-hedged convexity selling — DHCS#

The second strategy starts from a question TRPS never asks itself: if the product for sale is convexity, why keep the delta attached to it? A sold put is a package of two exposures: a directional bet (the positive delta: you profit if the index rises) and a volatility bet (short gamma and vega, long theta: you profit if the world moves less than what was priced). The first exposure you already own, in abundance, in the collateral portfolio: that’s the ERP. The second is the reason you’re here: the VRP. Delta-hedged convexity selling surgically separates the two and keeps only the second: it sells the option and simultaneously sells futures to neutralize the delta, rebalancing the hedge every day. It’s the strategy from the Israelov and Tummala paper (Which Index Options Should You Sell?) that you’ve already met twice — for the STAR methodology on the Risk measures page and for the critique of TRPS on the TRPS page — and which here I finally assemble in full.

TRPS vs DHCS

Mon, 01 Jan 0001 00:00:00 +0000

TRPS vs DHCS#

You’ve made it to the end, and I can finally set the two strategies side by side. An honest premise: there is no winner, and anyone selling you one hasn’t understood the problem. TRPS and DHCS draw from the same source — the VRP of the Volatility risk premium page — but they collect it with almost opposite architectures, and the choice depends on which risk you’d rather carry, which routine you’re able to sustain, and what’s in the rest of your portfolio. I’ll proceed by comparisons, then give my synthesis.