Corto said:
Got nowhere. Obviously more than I can chew. I went to google to find out about risk reversal, stickiness, etc. Funny that some links pointed to this forum.
I had no clue stickiness is a valid notion, I thought it’s a term you coined.
Anyway, I learned few things, but I’m still far from getting what you’re saying.
What do you mean by targeting neutrality which is 10 SPX above the body strike?
Structuring the fly so that the position would be delta-neutral 10 points above the body strike on the bearish 132C fly
What do you call neutral strike? Is this related to the above?
The closest strike to delta-neutrality on the spread
Then you said: The targeted body strike is trading 13.7%. You’re expecting the vol at the neutral strike to be 12.7% and perhaps 12.3% on the body.
I assume targeted body strike means the strike where you’ll have 3 shorts at and you see its vol = 13.7% - correct?
No, the strike = your prediction (target) on SPX spot.
Then do I expect that to drop to 12.3%? Please explain.
Prevailing (current) ATM vol and the "stickiness" or contamination of the target strike trading to the prevailing ATM vol as spot approaches that strike; absent a rise in strip volatility
Bearish 132C fly neutral to 10 points under the body? A picture is worth a thousand words – I know I’m asking too much.
