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Probably not the advice you're looking for, but my best counsel is never to give your friends free financial advice. If you're right they won't remember. If you're wrong they'll hate you, and you'll feel awful. The world's best financial minds can't agree whether the next big thing will be...

It's a consistent phenomenon, especially intra-day, that when an index goes down the implied volatility of its options goes up, and vice versa. I wouldn't call it magic, that's just the way it is. It is not necessarily true of options on other things. If you're trading options on indexes then...

If you buy index calls for example you are long delta and long vega. It's possible for the market to drop yet IV goes up enough to offset your loss or even leave you with a profit. Perhaps that's what you're talking about?

It's been a little lower Mark - 22.48 on 9/11/09 and 22.19 on 9/23/09. Tell me what your outlook is for stocks and I'll tell you whether to be long or short the VIX. You'd have to be pretty bullish stocks to be short the VIX here, an aggressive stance given the move we've had over the last 7...

Bernie Madoff claimed relatively modest profits of 1% monthly. But in reality he couldn't produce even that - despite having enough money to hire the world's smartest people. Do you really think 5-10% monthly is remotely realistic?

All true. My question was about terminology - how to describe a smile-shaped function vs a frown-shaped function in mathematical terms. I corresponded last night with a mathematician who told me that "back in the day" when he learned calculus they referred to it as "concave up" and "concave...

One more question - from a mathematical point of view, is negative convexity (the "frown-shaped" curve) the same thing as concavity? And if so, would a pure mathematician who has no connection with finance be more likely to refer to a "frown-shaped" curve as negative convexity or concavity...

Yes, I think "positive convexity" and "negative convexity" are exactly what I'm looking for. Thanks. Your point about delta is exactly what I'm trying to show.

Somehow the extension got cut off - here it is again. It's a word file.

Forgot the file - here it is.

Maw, I'm sure you can answer this question if only I can express what it is I'm asking. So far I haven't done a good job, based on the answers I've gotten. I'm attaching a word file. On page 1 are long gamma P/L curves - all with that characteristic "smile" shape. On page 2 are short-gamma...

Any time you are long gamma, the shape of your P/L curve could be described as a smile shape, or a U shape, or a saucer shape, etc. Any time you are short gamma, your P/L curve could be described as a frown shape, or an upside-down U shape, or upside-down saucer shape. The U or smile or...

If you expect horrendous slippage when exiting your futures position in such an event, why do you think there will be less slippage when concurrently exiting your options position?

Thanks for posting this. If you scratch the surface of the guys who promise to teach you how to make an easy 5% monthly trading options, you'll find a lot of such stories.

Vega is the sensitivity to a change in IV.

You didn't say what you're trading, although the quote looks like eur/usd. In any case, here's my problem with what you propose. Quite aside from any greek considerations, if there's a problem with liquidity in the futures contract you're trading, that will only be worse with the options...

Sure - if it's a small market with few big players and you have a clue from day-to-day participation who's doing what, that would be a different story.

I completely agree with xflat on this. If you want to guess the reason any given trade took place, you'll do just as well to flip a coin. I understand how tempting it is to try to make sense of something like that, and as entertainment there's nothing wrong with it, but the harsh truth is...

Right. If futures are at 70, then "equivalent calls and puts" would be, say, the 80 calls and the 60 puts. When option traders talk about "the puts," they generally mean the OTM puts. When they say "the calls," the mean the OTM calls. So this article is really about the skew - the...

NO NO NO! The options pricing model doesn't assume you are an MM -- unless you trick it into thinking you're an MM by feeding it the MM's interest rate rather than yours. If you had fed it YOUR interest rate, then it would have given you YOUR fair value for the options. Donnap's solution...