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Phil, I found your strategy interesting from a market-maker point of view. Couple of questions: Do you ever consider constructing bull spreads out of ITM calls (equivalent to OTM put spread)? When selecting the strikes, are you only looking at historical distribution (probability...

!! angry rant follows !! Ok, imagine the following hypothetical situation. A senior trader gets a talking-to from the head of the department. Apparently, a young lady that was working with him as a trader-trainee, quit. To be specific, she asked to be transfered to a different desk. Why...

Oddly enough, the whole topic of sabatical came up in my discussion with him recently. Apparently, another book is on the way.

There is risk in this structure - by purchasing options he is foregoing risk-free interest on the capital and in the worst case will see NO return on his capital (100% in, 100% out).

Don't you think that calls in your structure would loose time value too? :) The main difference between your structure and mine is that you can (a) choose a mildly risky capital vehicle (i.e. A+ bond instead of govies). This will allow you to take a position that would either compensate you...

Theoretically, your structure is not any different from purchasing the index and then buyin AMTF put. In fact, being long index plus puts would have the added tax advantages because of the dividents and long-term gains.

I realize that you are the sponsor of this web site and thus you can say no wrong, but that part is misleading at the least. Derivatives industry is growing at a very rapid pace and the number of quantitative people that are needed to work there is growing with it. For someone who knows math, a...

Not true at all - every bank I know is hiring, Goldman especially. Smart people are in demand, dumb and obsolete people are getting fired. That's true in general, not only on Wall Street. And in general, Goldman has less to offer - their packages (esp. for juniors) are skewed to the lower side...

No, the vol surface does not have to be flat, it has to have the same vol at reflection stirke. A truly-symmetrical smile (no skew) would keep put/call symmetry. The point of this is as follows - let's say you want to trade a risk reversal with call at X delta. Let's take the same example -...

Dude, I'm talking about put/call SYMMETRY, not put/call PARITY. This one is a model-dependent relationship assuming geometric (proportional) brownian motion. The forward here can be interpreted as a geometric mirror reflecting a call into a certain number of puts. Here is an example: Forward...

Actually, there is another, little-known relationship called put/call symmetry that has to do with fair value of puts vs calls: Call(K) = Put(f^2/K) * (K/f)

After all, MM is yet another trader in the market and will do what all traders do. In presense of a barrier, literally a knockout barrier, a P&L boundary or something of that sort, he certainly will. Most probably it's going to be at a global level (i.e. you are long skew, MM will short skew...

What you are missing is the fact that each specific option is not liquid. For example, if you are buying a 90 call on XYZ, it is not very plausible that there will be a seller of the very same option coming up in the near future. However, a market maker knows his risks in the form of greeks and...

Since I am stuck at the airport waiting for a flight to London, I might as well answer. I did read the thing rather carefully. Yes, the speech was outlining the failures of the derivatives exchanges, especially the geared-for-retail ones, IB a prime example. Increasing business is exactly...

Very entertaining bitching and moaning * Someone crosses trades outside the exchange. Handling fourth markets would require them to actually pay attention to the outside world and read the flows. Are they actually expecting that people are going to hedge vol flows for their structured...

Is that Matt Derebery's shop? I recall some "interesting" gossips about it, but can't remember who else runs the place.

Of course - if there is no way to ARB a market of essential goods, the prices will always favor the seller up to the point of subsitutability. Do you think retail gasoline is failry priced, for example?

How many years are you doing this, if I may ask? Cause I would really love to see how your book fared in 98 and 01. It's easy to boast selling premium in a declining vol environment. I know couple dealers that got caught short call-side gamma in OTC bond options on Sep 11 and posted 10-million...

Most of the dealers do it this way - eliminates the redundancies in hedges and decrease transaction costs. For example, if one guy is short delta and another is long delta on the same bucket, it would be netted out.

It's the forward price, which is spot price times (1 + risk free rate). Now, you should remember that this approximation would be a bit off because of discounting and the fact that this is a first order approximation. In general, it' would be off by less then half of BS vol, though, so it's a...