Electronic Exotic Options Trading

[riskarb]

Quote from sle:

Being on the OTC side of the world, I never actually got deal with risk-based haircuts. Could you explain a bit?

I don't currently have a risk-based haircut, but obviously it's to facilitate market making. An upstairs trader/market maker joins a Joint Back Office to receive risk-haircut. Reduced, the haircut required is VaR at x%; or possibly loss of x% at two sigma up/down, whichever is greater. It usually requires an S7 unless your backer is large enough to offer endogenous leverage [retail req] simply on the basis of being very well capitalized.

Risk-haircut on unhedged shares is 15% vs. 50% for RegT retail.

There are a ton of JBOs in Chicago; Block through 1st Ops[GS/SLK], etc... "Back in the day" the minimum capital req. w/o joining a firm was $250k.

Maverick74 would be the guy to talk to as he deals with a haircut every trading day... I've been out of the loop for a long time and never gave it too much consideration.

 

[IV_Trader]

Quote from sle:

You mean a market-maker? Having a short gamma bias is a way to go (in general) for a market-maker.

Hey , Sle... Yes , in general , but isn't very dangerous in the last week of exp ? Even with a small trend , the tree structure will overwrite the loss of theta , no ? The ATM SPX's straddle was selling just for 1.2% of the nominal this morning , what will happen if market goes down again tomorrow?

 

[CPTrader]

Quote from CALCULON:

The pricing is only representative of the moment. Initial edge loss isn't a practical concern beyond "relative value". A 7day binary touch will lose approximately 15% of value due to one day's decay at static vol+spot price. Initial edge and vol is more critical for longer dated binaries; short dated binaries are priced by their initial delta, gamma, dgamma. The curvature of gamma is an overwhelming influence as all binary-barriers are traded otm.

Run the house edge as IV has kindly suggested as well and the decay @ static vol+price for one day. Try to maintain 1d decay > house edge. The 1/7 ratio is a good parm for all maturities.

Risk what's he 1/7 ratio you are referring to.

IV can you chime in on this??

 

[IV_Trader]

Quote from CPTrader:

Risk what's he 1/7 ratio you are referring to.

IV can you chime in on this??

Riskarb is your man for this question...
I have to know the bet's conditions to calculated the diff between 6 and 7 branches tree for "odds to hit".