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If you ever worked for an investment bank, this topic should be very familiar.

5 million is wealthy. He must have been pretty senior already to get paid that much too. spending is ok, but it's too frequent to spend beyond your means. A million dollar yacht is an OK toy for a billionaire. Same goes for a car - my Fit does everything that I need and I don't need a fancy...

Same reason why my junior drives a Porsche RS-something and I drive an old Honda Fit. Looking good and being rich are not always consistent (not that I am rich).

You do realize that the owners net worth might be even more negative then yours? :)

To OP: think of three different vectors in options trading -- trade direction of the underlying -- trade volatility (realized or implied) -- trade risk premium Any trade you'd put on will include all of the above but in different amounts. You, as a trader, have to decide what vectors align with...

could you elaborate on what you mean by "naked option "? E.g. if I sell a put on Russel and buy a put on Spooz, am I trading naked options? If I sell 1 year NDF on RUBUSD and sell 3 month put against it?

In short, you will not find many narcissistic portfolio managers but you will find plenty senior managing directors with these tendencies.

Wall Street is full of these "winners". I have worked with a few enough to assemble the following set of observations: -- These are the people that are very good at privatizing gains and socializing the losses. -- As a general rule, they don't really have viable alpha because they have...

LOL :)

In the index world, it's pretty straight forward. Implied volatility is the best way to forecast of the realized volatility. There are plenty of sophisticated methods (weighted GARCH of various forms), but in general, event risk and seasonality will overpower whatever minor improvements you'd...

I was just giving an example that you can arbitrarily increase the precision of your prediction by adding more derivatives. Your mileage will vary greatly.

Well, think about it this way. If all you have is delta one products, you can do simple P&L predict using delta only and it would be good enough. If you have an options book, you can go further and predict p&l based on delta/gamma/vega, but if you want to can add other risk metrics (e.g. you...

That's when you partied too much over the holidays and the pants need to be expanded. Can be avoided, of course :)

Tailor expansion is just a method of extrapolation using your derivatives up to the Nth order. You can make it arbitrarily precise depending on which derivatives you include, e.g. you can include all sort of secondary greeks to make your risk better during bigger moves. People used to run large...

Gamma is the change of delta as a function of underlying price. So, since here we are shifting strike rather then spot, our new delta (in absence of other effects) will be original delta plus gamma contribution due to change in strike. I.e. if gamma is zero (for example, both options are DITM)...

Erm, no. The delta changes due to the change in implied vol across the strikes too, so technically you should do something like (assuming some nomalized units, obviously): delta(k1) = delta(k0) + gamma(k0) * (k1 - k0) + dDelta/dVol * (iv(k1) - iv(k0)) + ... PS. Usually, when people calculate...

I have a large VBA library that you can use as a template, if you want.

Dude, you gotta take the borrow rate into account when trying to understand these things. This product is not a secret and it's been pretty efficient for a while now. You'd "get" even better results if you short inverse against regular leveraged, e.g. something like SSO vs SDO. You can back out...

So what do YOU think will happen if you delta-hedge an LETF continuously (daily rebalancing is a good enough approximation)? PS. any backtest of this will be probably missing an important component

Dude, did you work through the math? If you delta-hedge with the underlying, a levered ETF on a more volatile underlying will have a lower expected return. You don't need a model to grasp this concept, just sit down and do the math on a piece of paper. PS. The borrow on these things will be...