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RIP! I've met the guy a couple times at EDF and WCS charity dinners. He was a real deal, I kinda wish I'd be like him when I "grow up".

Yes. It goes beyond theoretical - a delta-hedging P&L of a log contract (which is constant gamma by construction) is perfectly predictable difference between RV^2 and square-root weighted IV^2. It's a variance swap, that's why it is so "easy" to replicate. Yes. For example, if you sell a lot...

I am far too drunk to get into this now, let me just say that above would only be true for two specific cases - either a case where implied volatility use to calculate your delta along the path is equal to the terminal realized volatility or a case where you are hedging a log contract...

Unless you are doing something where you are gamma-weighted (e.g. have multiple options of various stirkes), my first suggestion is to use implied and realized volatilities rather then try to back-test the actual delta-hedging process. Otherwise, the path-dependent nature of your P&L will...

(1) yes, if you have the cash. (2) not really, but it's a discussion point - i've seen smaller things tip the scales (3) no, it's a plus if anything - i'd hire an athlete over a geek (4) CFA is the exam (5) you might still have a chance for lesser name firm if you can get your CV there -...

Well, taking theta-gamma equivalent option is a nice idea, but what would you do for a calendar spread? :) On a serious note, once you introduce more then a single option, you need to do fancier analysis to account for possible path dependency.

why not just do it in options, given the liquidity?

Hmmm. I see the total OI on Dec/Jan/Feb as 237, 831 and 43 respectively. The highest OI in Jan, at 10,000 JPY per point comes out to be whopping 80k of exposure across all players. Out of curiosity, what size do you have on?

Can I sell some 5-delta puts or some other carry-equivalent? :)

A junior trader named Max Was trading short gamma in swaps He was getting ahead, but forgot of the Fed And now he's working in ops A senior trader named Larry Liked to collect lot's of carry He shorted some yen and was recently canned But found a new job in a hurry. (c) yours truly

Do you still find vol an attractive sell? What underlying are we talking about, anyway?

I am sorry, maybe I am missing something. So far, what I gather is that you are trading the firms capital doing some FI spreads (STIRs/bond futures etc, all the rage down under). What is your payout ratio? is it tied to your metrics, like Sharpe? The numbers that your are throwing around...

A bit of a Texas hedge there, IMO :)

Early excerise happends usually when the long has a good reason to own the stock -- either there is a dividend coming up; in which case, value of the dividend has to be over the value of residual optionality -- there is huge borrow rate in the stock and the P/V of the borrow is (again) higher...

The question is not in probability of win/loss, but in risk/reward. While chances are you are going to realize less then the market is implying (Dec13 ATM is at 9.75%), the downside on the vol side is a couple vols while you can easily realize way more, especially with the Fed meeting right...

Out of curiosity, how do they get around the funding issues as a prop firm? Basis trading is highly balance-sheet and repo/funding intensive.

That sounds a bit backwards. IMO, if the vol is statistically low already, realisation is very directional, while at high levels of vol (which usually happends when market is already down) you can "catch" a volatile bounce-back.

Sorry, do you mean that you are going to short some vol here and have a short delta lean or that you are going to short vol now and hedge your delta when/if the market tanks?

This statement is equally applicable to gold. Even without reading the wiki page, I could tell you that one of the key characteristics of a ponzi scheme (unlike any other "perscieved" value product) are the unlimited "on-demand" nature of the asset in question. In case of a limited-supply asset...