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How does one use BS in bond basis statistical arbitrage?

that’s not what your statement said. You qualified it as the retail community was hammered. Do you still stand by that claim?

too much confusion in this post.

quoting "thecoder" aka "botpro" is pure lunacy. You are better off quoting the crazy homeless guy down the street on this topic. But what does that thread have to do with LTCM's blow up?

thanks for the reply. the ytd return is 3%. are you saying that you are only risking 5% of the account each week? that is you are up 60% on return on total risk? that's a lot more impressive than i thought.

it doesn’t tell you what your purchase date was?

Ltcm was statistical arb of bond prices. It had nothing to do with black scholes. So again, how does LTCM’s blowup invalidate The black scholes model when they weren’t even using it. spend some time understanding the black-scholes model. Not the snd(1)-knd(2) one but the theory behind it. It’s...

better description is that the market doesn’t care to predict what the spx has done in the past. It doesn’t need to because it can create synthetic portfolios to hedge out that risk and it can with certainty price those synthetic portfolios. There are models which try to take into account a...

Black scholes isn’t just the n(d1) formula. That was just one form of it. But the whole premise of no-arbitrage snd replicabilty has been disproven by an overlevered failed hedge fund 20 years ago.

in light of this: https://www.bloomberg.com/news/features/2018-10-04/the-big-hack-how-china-used-a-tiny-chip-to-infiltrate-america-s-top-companies maybe a big deal was warranted.

there are models that account for all of these issues - including the situation where options aren't tradeable (like ESO's). They are variants of the fundamental model.

all those limitiations were well understood before LTCM. Why would LTCM's blow up (on bonds) invalidate the framework. Just because one of the founders of the firm was part of it when it blew up? That's a weird way of looking at the world.

can you explain what losing on a bond basis that's levered 30:1 has to do with the black scholes framework?

I appreciate the intellectual honesty in this thread. Is the performance what you expected? What is the weekly volatility of the pnl? If the performance is lower than you expected, what do you think is the root cause?

if they crash, the repairs are CRAZY expensive and take a CRAZY long time. I put my tesla back primarily for that reason (and the customer service sucks).

Because of the no arbitrage principle. black scholes isn’t predicting where the stock will trade but rather what price the forward of the stock should be. Anything other than the risk free rate - dividends is arbitragible.

I’ve had one of the best runs in my career in the last 3 months (in dollar terms). I made more than what some people on here have described as quit and retire money. It was all on the single stock stuff that is abysmally hammering all the retail guys according to you.

what happens if the stock rallies a lot after you sell the put? Who spends time researching a stock then bets it is going to rally by setting a trade that has limited upside to that view. there is a reason all those smart long short guys like bill ackman and chase Coleman buy the equities...

not if he has confidence the stock will recover because of his fundamental credit analysis. most of us who sell puts do it without actually understanding the companies underlying the options so we have no idea if Microsoft is worth 200, 250, 300. But he might have a view that it shouldn’t be...

Remember those videos in Drivers Ed showing all the dead people from driving recklessly? They are all from the 60’s and 70’s because car safety has gotten so good that there isn’t enough material to create a video today.