DP's exotics journal

EURUSD going off at 60 on the week. I can't hedge large enough to make a difference (would require 1MM units here), and I didn't take the bet on Cauchy/symmetric-distribution (the long synthetic straddle).

It's purely an upside call until I can get-off 500K spot at 3785. I've got a MIT short at 3785 for 500.
 
Good luck on the trades. I think 3800 may act as a magnet next week. vol lifted but not much last I checked, although I don't have access to live quotes on it.



drownpruf said:
Yeah, DNTs are the meth of the vola-World.
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lol

If you recall I was just trying to get into doing this until you took the only op I had away! :( (oanda)

I'm thinking my best bet is IB and try to structure something similar in listed vanillas on equities. I do have work cut out for me before I do, but I understand the basic idea.
 
contra said:
Good luck on the trades. I think 3800 may act as a magnet next week. vol lifted but not much last I checked, although I don't have access to live quotes on it.





lol

If you recall I was just trying to get into doing this until you took the only op I had away! :( (oanda)

I'm thinking my best bet is IB and try to structure something similar in listed vanillas on equities. I do have work cut out for me before I do, but I understand the basic idea.
More...

The curvature isn't the same, but you can structure a narrow OTM vertical (synthetic digital) and cut it when you hit the long strike. You'll have to trade larger than you would normally do.
 
drownpruf said:
The curvature isn't the same, but you can structure a narrow OTM vertical (synthetic digital) and cut it when you hit the long strike. You'll have to trade larger than you would normally do.
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Thanks, I'll check that out next week. I like what you guys were doing with the flies too.
 
drownpruf said:
Obviously you have to choose some point on the curve (gamma) to hedge the thing. I normally let these go (unhedged), but had a significant debit at risk. The $gamma/VV got too big to ignore and I had a "stop" at 3825. I run matrices in r/t which runs touch pricing. I wasn't willing to pay more than I did for that touch hedge. I don't solve for the moment-risk; I solve for the debit needed to effect the hedge. Specifically, it scrapes the pricing from BOM and they do offer a matrix, if I recall.

I was willing to risk half the DNT debit on the hedge. I had some room to recover (20 pips between touch and DNT barrier). It's moot as we're going to take out the DNT. There is a recurring theme of 1/2 hedges in spot and vola on this and my previous threads.

Yeah, the numbers look big in terms of %. The DNT hedge was well-timed and robust. I should've hedged the full DNT debit, but was ok with the risk. Sure, I should've gone with a 30K touch-hedge.
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Thanks for the explanation, this looks more involved than thought, interesting indeed.

So the hedge idea is to recover 1/2 the original investment and not so much as to turn it into a scratch trade. There are 3 scenarios that I can think of: EUR trades through 1.3750, DNT expires but gained on touch hedge - loses 1/2 of investment. EUR remains above touch hedge and below upper boundary of DNT until expiration, loses on touch hedge but gain on DNT - scratch trade. Best scenario would be when touch hedge is triggered but stayed within DNT bounds till expiration - gains on both trades... nice!
 
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