The Trade Busters 41 - Vibranium Shield - Hedge Portion
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Oct 30, 2021 This episode of the podcast explores the hedge portion of the Vibranium Shield hedging strategy, including options mechanics, multiple scenarios for short and long options positions, the strategy of lower delta and higher DTE, budget allocation and entry mechanics, and implementing the Vibranium Shield strategy.
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Convexity Trumps Delta Matching
- The hedge uses 90 DTE 1.5-delta long puts to prioritize convexity over delta matching.
- That convexity creates a 'dead zone' where both income trades and the hedge may lose before the hedge accelerates.
Contrived Same-Strike Example
- He gives a contrived example of buying the same short put to show perfect offset without convexity.
- Buying multiple lower-delta longs can start matching and then exceed the short's loss as movements intensify.
Vega Drives Low-Delta Convexity
- Very low deltas (around 1.5) produce convexity mainly via vega expansion, not delta.
- These longs pay off disproportionately in large, volatile drawdowns rather than in small drops.