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Yeah, that is bullshit (a side question - why do people write to wikipeda if they have no clue?). The loss came from a ratio CDO trade that was intended to short the housing market. In 2006, MS management was getting concerned that housing is going to crack, so they decided to put on a short...

Given that it's a real barn-burner day today, I'll tell the MSFT/JPM story. In 2003, MSFT came to a bunch of banks with a request to monetize their OTM employee stock options. The idea was that banks would bid for a package of options and delta hedge. A few banks participated and JPM decided...

The real funny thing about that loss is that it was actually a trade to short housing (sic!).

I am not disputing your main point, which is (my understanding) that if you keep selling naked risk premium it will eventually catch up to you. It's true everywhere, in vol as well as in rates or credit. The market can and will stay irrational longer then you can stay solvent. This...

Even if you are delta hedging? :D

Well, it's not the violent vol crush that you should be concerned about, it's the slow bleed combined with a slow vol crush. Folks at JPM that did the infamous MSFT trade know this all too painfully (though I doubt any of them are at JPM by now). I can relate the story if anyone cares...

Could be enough and could be not, depending on the inception moneyness (obviously). If you are mainly trading ATM options, it's kinda ok, if you are selling 10-delta options however, it's not. You have to make up your mind if you are trading 2nd, 3rd or 4rth moment of the distribution - the...

Just to add to your thought process, be very careful when backtesting any option strategies using option prices (**HFTS option strategies aside, most of that is delta-trading). Because of convexity, the number of observations you need to get a reasonable sample is way larger and your backtests...

No, that's not what I said. When I say "risk premium" it's a generic term for "little extra" you'd have to pay to protect yourself in the market. To name a few, just in an index, it could be gamma (straight-forward option convexity), term structure (additional slope of the term structure to...

I disagree with Mav a little bit. In general, risk premium is overpriced (that's the nautre of the institutional business) and harvesting it is a positive expectation trade long term. However, the knock-out nature of the possible shocks makes it an unpleasant trade if done unhedged. So, you want...

What if the market reverses, are you going to sell it back? oddly enough, the old "naive" hedge question is not very common on ET

Too bad there are no bids out there :D

Well, the inputs were: you've had 4 sell-side jobs as a quant-trader (whatever that means in your thought process), left/fired in 2009 and now "run your own fund". The outputs are obvious: you moved around a lot and good/succesfull people rarely jump from place to place; your last place did not...

I obviously don't have a clue, as you said. However, in my experience most senior people at sell-side shops would have a broad understanding of the business. It is especially true about the quantitative types. It might not be a detailed knowledge but they know enough to keep up a conversation...

I don't get it. How could you work in the industry for a long time in any sort of senior trading capacity and yet have zero understanding of business areas outside your own domain? Are you sure you were a quant trader and not just a glorified programmer that jumped from shop to shop every...

(a) - you are probably wasting your time. In general, MS in quant finance does not teach you anything of value unless you are looking to become a quant developer for a bank or a fund. (b) - you can land a well-paying job in finance as is, just need to look around and leverage your existing...

still zero volume... they should paint the tape a little to attract traders :p

Given the demands for convexity coming from hedgers, smaller fund are not making a dent there. With S&P at all-time highs, where do you think 10y S&P variance swap? 27 @ 28. Somehow, nobody is selling it. No true. For a trader at a bank, "management fee" is the value of the seat. If you are in...

Very shortly before I have to dive back :) On the hedge fund side, you are making a key mistake in thinking that fund managers actually care about returns (which makes sense, you are a prop trader after all). They mostly don't. The majority of the large fund mangers only care about the...

An interesting question is - if someone would issue an ETF that rolls variance futures (lets say keeps shorting quaterly expirations), would it be a sucess with retail?