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Basically, I keep the same implied volatility while all the position lasts. That is the implied volatility the strike traded, the day traded. This is the very simple way I found to compute my pos. But I change my deltas. Because of the skew, I add the variation of the volty with respect to...

I apologize for being so late to thank you for the example Dmo, since I was one who asked for. It wouldn't be polite, so thank you for your work and for your time. BTW, you wrote "you sell futures to get delta neutral..." with which delta from which volatility, how long you do it (since...

Quoted from which Monthy Python movie? The link between the two posts is just wonderful.:D

Hi BeatingtheSP500 Why?:)

I agree Emilio. I'm on your side Emilio. Right ahead Emilio.

I was drunk as usual, sorry :D Regards

Hi hlpsg, For broad purpose skewness of datas can be mesured by the third moment about the mean. So if you got your serie (whatever you want, daily return, daily volatility...), 1-you compute the mean :sum of datas divided by number of datas. 2-you compute the standard deviation ...

who? Does it mean that is the only reason? Doesn't it mean that if to me, skew is made by several reasons, it rejects yours? I find it's a little bit binary. Btw, if vomma sounds like what you do when you have the flu, volga may sound like a russian river? Delta would be related with Mississippi?

As institutions that held large long bond positions start to buy options, they need people to sell them. The price people would sell them depend on the risk of the instrument, and for an option like an otm put, the vomma is an indicator of risk and how price will be impacted by the sensitivity...

Well, you got my answer just above. What do you mean with "keep on editing"?

No, because if you read what i've written, a put is not a call. There is no symmetry except for forex options. So, my arguments are not in opposition. Smile and smirk are related with correlation between asset prices and volatility. It's not an immutable situation. It varies as market...

The vol of vol, volga/ vomma or convexity of vega are some reasons for deep and out options to be price higher than a BS suggest. Fat tails are in proportion of vol of vol, and become more important as maturity decreases. Correlation between vol and asset price change a smile into a smirk...

Hi beep1, This is the put with the same strike. Cheers

Hi tyrant, There is no possible abitrage due to transaction cost, slippage, cost of carry..and parity for european style options. My point is some people who own a pure SP portfolio hedge themself with puts. That's insurance reason. They own SP, they hedge SP. But over there, there are...

Ah, ah, Dmo you are tenacious. Portfolio insurance sounds as a good reason, but if that was the reason, people would try to reduce the cost. Why those people never learned a call purchasing and a short future would be cheaper than the symmetric put? 20 years after? No we are not. First we...

Hi hlpsg, The problem is we can't know the real distribution. Unknown events are infinite. Here we got trends, gaps, jumps.... For most models, one adopts the fact returns follow a normal distribution ,hence there is a log normal distribution that follows the underlying price. That is why...

I've PM-ed you.

It's sounds really nice. Why don't you price a real time example ? We will see which options you trade and how they vary, how you practically delta hedge with real numbers, it could be useful for everyone here on ET.

Please correct me if I'm wrong, you' re "blown up" only if you were leveraged. Since, once again, basically an index can't worth zero. The opposit side, short calls on index can blow you up without leverage. A pretty market increase is enough ( like 2000's).

Well of COURSE I'm happy you agreed. My only point is that if one considers skew as a market, different people are buying puts for different purposes, it's impossible to state there is only one reason why they do so. Hence one can't completely explain skew. The way it curves is just based on "no...