Destriero's single-name vola journal (riskarb; atticus; et al)
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Hi Destriero
This is my first post here, and I wanted to say that I signed up to be able to a) thank you for calling BS as you see it and b) taking the time to answer questions and show your trades. Reading your posts for some time now has shown me how complex options really are (duh), and given me a lot of food for thought on what I need to educate myself on in the future. I hope you'll continue this journal!
This is my first post here, and I wanted to say that I signed up to be able to a) thank you for calling BS as you see it and b) taking the time to answer questions and show your trades. Reading your posts for some time now has shown me how complex options really are (duh), and given me a lot of food for thought on what I need to educate myself on in the future. I hope you'll continue this journal!
By the way, Thinkorswim just posted that they were going to do a chat on skewed butterflies so if anyone uses ToS, check on that today to get some background.
Ignoring Dest7 as I'd stopped posting due to the competition thread. It was profitable, but I'm not going to revisit it.
Dest8: SPX Jul20 2725/2775/2875 231P but done via synthetic which is shown as a credit in red via the IC template. $61.20 via natural; 38.75 via the synthetic. Risk is $6,125 per spread/combo.
The natural asym fly vs. the synthetic:
Natural is the vertical (231P; 132C) and equivalent. The synthetic simply replaces the "ITM" bull call vertical, in the case of a 132C, with a bull put vertical. Long call vert = short put vert = box arbitrage.
XYZ 100/110/115 132 in calls = Long 1 100C/110C vertical; short 2 110/115C vertical. You're replacing the long 100/110C vertical with a short 100/110P vertical. Their equivalence is dictated by the arb.
Always try to dissect a complex book starting with the (calendars, then) verticals.
Natural is the vertical (231P; 132C) and equivalent. The synthetic simply replaces the "ITM" bull call vertical, in the case of a 132C, with a bull put vertical. Long call vert = short put vert = box arbitrage.
XYZ 100/110/115 132 in calls = Long 1 100C/110C vertical; short 2 110/115C vertical. You're replacing the long 100/110C vertical with a short 100/110P vertical. Their equivalence is dictated by the arb.
Always try to dissect a complex book starting with the (calendars, then) verticals.
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des - From your posts, it appears to me that your butterfly trades are primarily based on the difference between stat vol forecasts and current implied vol. Are your stat vol forecasts based on simple models like GARCH, or are they more involved than that? Also, do your trades take the vol skew into account?
As Cottlesaid, find the baby FLYS or imbedded verticals in the position for replication. Also if you have a standard FLY wide enough you can even sell the baby flys to bring in credit. FLYS are wonderful for studying and learning how options work.
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