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No implied vol. VERY simplistically: your own a call. spot is 100. Strike is 110. and there are 2 days until expiry. implied vol says that each day it goes up or down by 20%. (market decides this) so SIMPLISTICALLY the spot will go down: 80 then to 64. Or up: 120 then 144. So you...

ha. cheers

hahaha smashed. sorry. hope you get the idea! FFS. will shut up now. apologies

sorry sell 60 Dec12 synthetics

Oh. got it. Firstly I am a market maker. Hence try to hedge out as much exposure as I can to leave me with vol. exposure only. If I sell say a Dec12 risky for the put, 60D, then sell my 60 deltas. (June expiry futures) Then hedge a rate strip. I look to just have a vol exposure...

?? i wasn't trying to be smart, just home after a couple of beers and rambled. sorry if it came across that way. I wasn't claiming to have written the model, I just move the inputs to try to fit the curve to the market across all strikes. I just try to reduce my back end exposure to things...

Don't confuse the inputs to BSM with the greeks. The inputs feed into the BSM which spits out the option price. The greeks tell you that if your inputs change by one unit, how the value of your option changes. Theta is not time, but tells you how much the option value changes with...

And I didn't read the numbers in your question properly,, that is WAY too much. Define exactly what sort of box you mean??

Margining is your risk. My model prices using euribor futures for the interest rate, because that is what I hedge with, as that is what my market exposure is. I am margined however on EONIA +/- a spread depending on if i am long or short premium. This difference may give the appearance...

Don't know why I attached that quote Martinghoul... I agree with everything that you have said. It was in reference to your anti short gamma line. Which I agree with generally.

Well when I had my ass handed to me last thursday, I started flat vol, long gamma, long theta... a dream right?!! - It was a position that I had got myself into in a quiet market trying to eek out some stress free cash. Unfortunately this had been done at the expense of being short skew (long...

LONG the underlying. I dreamt of being short!!

I was short buckets of vol and front skew last Thursday/Friday... it was NASTY!! and I must say it felt decidedly worse than being short the underlying...:eek:

OK got it!! We been smashed to bits after selling deep OTM puts which have gone ITM by expiry... and our recovery option is now "risk-taking". Bring it on!!

It is exactly the same thing. Your recovery example makes no sense in a liquid market. I am not sure why owning an asset of which we have no knowledge of its future value is a recovery option, unless it is an illiquid market which makes it difficult to get the asset (clearly not the SPY). In...

Well I am the first to admit I have very little experience in trading options on single stocks (compared with indices) so I would love to hear the example. I am sure one exists. Is there a difference in me buying a $100,000 house from for $1,000,000; or me just giving you $900,000??

or a lower price. that last statement is ridiculous. without going into the intricacies of cash v stock settled, indices v stock options etc... it is exactly the same as selling hurricaine insurance and this is a good way to conceptualise it.

Buy low delta puts on the Eurostoxx50 Index (SX5E) and let them run. Sell them out after the panic/market fall (as oposed to running them to expiry). I am a market maker of options on this. Huge volumes of underlying and the options. Very liquid market. And it is very sensitive to any of the...

Am I missing something or is there something missing from the question?? What delta options are we talking about? The 80% expiring out of the money may just give an indication as to what the average delta of the option being sold in the market is??? Sell 1 delta options and I promise you...

Hi all. I am interested in why so many people here are using Sharpe Ratio as a measure of their performance in options trading. It was my understanding that this performance measure is not appropriate when there is an asymetric distribution of returns... which by their very nature options...