Search results

Ok, maybe we can help each other ? I'll post up what I *think* would be a balanced portfolio later today.

You seem to have taken offence - why ? I'm trying to learn this strategy, that's why I posted questions to you. They aren't "negative comments" at all, they are genuine questions. If you don't know the answers say so, I certainly would given the other way around. Sorry for offending you.

That ratio looks good, but you do realize it’s a crude indicator and not representative of the statistical implied correlation between components / index ? As I understand from your posts, you’re wanting to trade a reverse dispersion by shorting the component Puts and go long the index...

Is partial replication a reasonable risk ? If so, this then begs the question of which stocks to select for a partial replication ? How is the optimal basket defined ? Obviously heavily weighted stocks, but what percentage of the index would you reasonably need to replicate ? What about...

Agreed, it should be, but it can't be. This is precisely where Put-Call parity breaks down. This is total b*llocks IMHO. Again, why has this "expirationless" never been done before ?

An option dated a couple of decades away is very different to an option which doesn't expire - ever. Having played with the BS model this is how I see them behaving; ***** Where the carry costs are negative (stock yield is less than risk free rate), as you go further and further out in...

It's easy to account for "Long term", but how exactly do you account for infinity ???

Maybe someone's having a laugh.

Are you sure it's not a joke ? How the hell would you price an option that doesn't expire ? How do you account for the infinate finance ? Surely there would be an interest rate arb, one way or the other ? In all the years traditional options have been around, why has nobody come up with...

Risk Just a quick one if I may.... Why is there so little written material on this strategy ? is it the domain of hedge funds only ? Closly guarded secret etc ?

Riskarb It'll take me a week to digest that lot above. Thanks again.

Hello ?

What exactly do you mean by “locking Vols” ? Are you implying they could be profitable if they did it right ? Not sure what you mean here; do you mean the Index Vol vs Component Vol has a moderate amount of variance which could be exploited ? Or are you talking about the bid/offer spread of...

Cheers. Surely any an implied correlation approaching +1 has got to be a good risk ?

Isn't that a contradiction ? If you have an implied correlation of +1 or more and replicate the mother index 100% with the components, you cannot make any intrinsic loss. Where the implied correlation is more than +1 the trade would be opened for a credit and that $ value would actually be the...

Defining riskiness as a probability of loss, the 2 sigma OTM is more risky. In terms of expectancy (which I think is what you're alluding to) they are both the same.

Still can't see how it could be calculated by using the weighted ratio of LN price change correlations rather than stock price correlations - correlation values of LN price changes bear no resemblance to the actual correlation value of 2 x stocks. Anyway, that's probably irrelevant, as I...

I've looked at it from all angles and can't see how it's done. Anyone know ?

<font color=#ffffff>..............</font color>Corr to Index<font color=#ffffff>...........</font color>Index Weight Stock A<font color=#ffffff>.......</font color>0.60<font color=#ffffff>..........................</font color>0.10 Stock B<font color=#ffffff>.......</font color>0.70<font...

IV_Trader Was it necessary to 100% replicate the index ? Could you not have chosen a broadly representative basket of stocks from various sectors ? Did you buy the stocks in their correct weightings ? How did you balance the long DIA Puts ? Was it by $ delta or what other method ? I...