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What does your dictionary say, may I ask?

You can have a difference between ATM and the wings without any slope across the strike. In that case, price of a risk reversal in vol terms will be 0, while price of a strangle will show you the smile. Alternatively, you could envision an example where a risk reversal will be high, but the...

Few things. a) volatility skew (a.k.a smile, smirk) is the structure of volatility across strikes for a given expiry date. For example, if you look at Jun Bund, 20 delta put is trading at 4.29% price vol, while 20 delta call is trading at 4.00%, the differential is due to the volatility...

Very. One can avoid stepping in front of a running train given the info i.e. Goldman just sold a ton of 9m10y, so I'd avoid getting long gamma, since they might have more to do. Also, a market maker would generally maintain a negative gamma bias. This way, in quiet times he's long theta...

Delta-hedging is a wierd thing. For example, in a range-bound market, both long and short gamma positions can make money. How's that for zero sum game? :D

How would % of the stock price be different from the actual dollar amount given that you know the initial price of the stock? These really are straight forward, unless I am missing something - do you have a term-sheet for one of these handy? Anyway, are you planning buy these notes and hedge...

In the rates markets is it not uncommon to see caps struck at 10%, usually as CMS hedges, but sometimes outright. I have also seen (and done) risk reversals rather far out (5 delta), as they have some nice rolldown properties. There's also a lot of people out there doing a variety of...

I presume you are talking of fixed rate exchangables? It is a fairly straight forward equity linked note. In it's simplest case, if the stock dropped below todays level, you get stock, otherwise, you get cash + interest. In short, you are selling ATM puts for cheap, either in a simple european...

Does anyone know of an options brokerage that is based on Bermuda or some other "removed" (from the UK/US perspective) location? The features that are important to me are: (a) access to the US markets (index options) (b) low enough comissions/fees (max $30 bucks per transaction) (c) easy...

Why is everyone here talking about doing low-delta structures? If there is one thing about kurtosis is that you never know when there is going to be too much or too little of it. I would preferr selling closer to the money (i.e. 20-30% delta) and do some delta against it. This said, sometime...

yes. if you do it on a spreadsheet, make sure it is the correlation of log change: ln px(today)/px(yesterday)

If you are saying that you are have fundamental opinions on the underlying, you should be trading the underlying. The point of trading in the options is that you can express directionless opinions and the actual traded asset is the volatility of the underlying. You are hoping that ADI...

I'd not venture a guess which way it's going to go. Historically, gamma is allways cheap across year-end, as there is a lot of willing sellers. At the same time, it is the time of major announcements and various other vol-inducing events.

you sure you want to be short gap and gamma going into the holiday season?

No, it is the correlation of the changes in the underlying. If you want to be really correct, you should use separate correlation for every pair, but it is not too hard to derive the same formula for the index to component correlation (the correlation of the two components to each other would be...

of course it would. Assuming flat correlation, it would be Basket Variance = Sum Vol(i)^2 * W(i)^2 + Sum Sum Correlation / W(i) Vol(i) W(j) Vol(j)

Well, of course there is some correlation at all times. However, think about it intuitively - on the big bad days, every stock is down, even the best-of-the-best. The easiest way to convince yourself is to look at historical intraday correlatons vs the direction of the index on that day. More...

You would kinda expect that in a panic-driven selloff everything correlates, while in a rally things disperse based on their relative value. From this, being long correlation (long index puts, short component puts) on the downside and short correlation (short index calls, long component calls)...

erm, buying boxes is a way to go - you get the funding rate of return. of course, for a retail customer it is better to sell boxes, since for him it would be hard to get similar funding costs anywhere else.

I don't think he is right - the bond is puttable (non-put period is 12M) to the US govt, the first 5 years it's a 3m earning exec. cost, after 5 years put option is free. It is pretty simple to stick this structure (CPI-adjusted cpn, puttable bond) into any derivative pricing system and you can...