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-- delta hedged his tail puts into the August expiration -- bought more crash protection (var/vol, specifically) Guess what happened?

People have blown up on a variety of far-end exotic risks. Heck, I know a guy who blew up being LONG a bunch of SPX tail risk in the fall of 2011 (now, THAT was an achievement if you ask me).

Your former colleague JW and his BSD-style trades? That was not being right, that was being VERY WRONG :)

Really? I think these companies are going to zero. Private prison population peaked in 2012 and has been declining. It's only about 10% of total inmates country-wide, so reshuffling them to public facilities is not gonna be that difficult. Oh, and the physical real estate is worth nothing (of...

Indeed, I missed that he's holding one the front leg to expiration. It's tricky, since he's exposed to the terminal distribution of the calendar spread, but then he's just as well exposed to the implied vol on the remaining leg. Ok, then... Dael, A. what is the view that you are trying to...

Underlying spot for the CSO is the spread, right? Volatility of the spread is the sum of the variances of the two legs minus twice the covariance, correct (*)? So, even if correlation goes to unity, the difference between the two volatilities will keep the spread volatility at non-zero. In...

Not too sound anal, but you probably mean covariance and not correlation, right? Cause in a spread, you can have correlation go to unity and the spread will still be volatile due to the difference in volatility of each component ( vol[A-B]^2 = volA^2 + volB^2 - 2*volA*volB*corrAB)

Beyondbreakeventrading, the question of asset allocation is an interesting one. Leverage-adjusted, I am pretty sure that real estate is the best bet, but these days even RE is highly correlated with the markets (or so it feels).

Really? I was around at the time, but I was pretty junior so maybe I was not plugged in enough. How well did those desks do when the tide reversed?

Zero-cost collars are great if you are an insider (talk to any IDB corporate derivs trader and he'll tell you stories of insiders collaring their stock and making out like a bandit) but they are usually collaring a smaller fraction of their stock and riding the balance. I can't imagine a...

No offense, but opinions have to be based on facts :) Let's take the total return S&P 500 data since 1871, it includes all sorts of economic environments including the Great Depression, a plethora of banking crises and many more interesting events. However, if you hold your investments for 20...

There is a definite positive bias in being a risk premia provider of any sort - sell options, buy risky bonds etc . If you have good risk management tools and are not tied to the same risk metrics as an average institutional monkey, you can do very well. Here is a simple way to think about it...

you have full downside and limited upside - indeed, what is there to lose :) PS. I am not telling to buy options, just pointing out that it's a flawed logic PPS. Statistically, the advantage of selling options is slim but there - market-wide short convexity aversion is real. Big balls and...

You also get destroyed on mini-crashes and your theta really sucks as the wings decay way faster. If you do it in a vega space and theta-neutralish it might be a better variation (play that dVega/dSpot mostly), but the skew has to be attractive.

They are shopped around, most probably with IDB (who in turn will show to layoff accounts). The price is usually set off delta execution, so if the delta block moves the stock it does not matter. Also, you never actually know the real price where it traded since the exchange print is usually...

I have to challenge this one. I'd recon that selling ATM cash secured puts would give you the same or better risk-adjusted returns then just S&P total return.

A stack of cash is nice, but kinda impractical - there is a reason why mafia expends significant resources on money laundering. In this case, both parties can claim that they did "a trade" that had an economic meaning and unless there is other evidence there is nothing to charge them with, no...

Actually, that's exactly what I did before I came to my conclusion. Low-delta, tight spreads, essentially digitals, nicely diversified across assets. As I said, it's a true and tried method for giving bribes (used to be futures straddles, but the brokers got burned on them). But of course, by...

Nice little kickback scheme going on, probably. It's a true and tried method - one person sells far OTM options (the recipient of the kickback, Mrs. Chu in this case) and another person buys them (the payer of the kickback), except in this case they are doing it with spreads to limit the margin...

Meaning that the cash is significantly under the futures of the same expiration as the option - if all stays the same in the world, you are gonna make that difference as the futures will converge "roll-down" to spot. It's a statistical trade and only makes sense in the markets that do not have a...