Has anyone read The Second Leg Down by Krishnan? Subtitle "strategies from profiting after a market sell-off" describes it pretty well, though it is more a mix of technical and shop-talk for fund managers than a cookbook for investors.
The biggest takeaway for me was the idea of using short 1×2 put ratios as a cost effective hedge. Is this really a good idea in practice?
Can anyone advise any better strategies for profiting from a recession and big market drop this fall, if it happens?
Edit: Let me expand a bit on what Krishnan is recommending as it might be useful for others if they are interested. The context of the hedge is a major crash/recession, not a downward swing or correction (the image below should explain why). He's suggesting rolling the short 1×2 put ratio where a 25 delta is bought, and two 10 delta are sold. He goes into detail on why he feels that these deltas are under and over priced respectively (book is from 2017, not sure if his assumption holds for all symbols or even fully today).
The Second Leg Down and crisis alpha capture in a recession
byu/Llama-007 inoptions
Posted by Llama-007
2 Comments
If the market is not dropping fast you’re in trouble as you might expire in between strikes: https://youtu.be/ypdIQ4Kuxfo?si=2BjYFPNDnbAmMZOE
Good book. I remember something about using different hedges (i.e. single puts, trend following down, ratio spreads) for different market conditions (i.e. first leg down, second leg down, severe trend down). I think 25 delta short leg was always best for most overpriced theta and gamma.