heard bank traders are selling vol and delta hedging...

[nfamousyoungest]

this guy is a bot used to generate hits from wilmott or someplace. asks a million questions and never follows up. increasenow's twin brother

 

[spindr0]

Quote from shortie:

Could we just skip to the answer?

What, no cookies and milk and nap first???

 

[spindr0]

Quote from heech:

I heard heech is having Mexican for lunch.

Thoughts?

Stay upwind from him

 

[mizhael]

Quote from psytrade:

I bought this book the other day - it takes a while to get across its point, and it wasn't written by a trader, but a commentator / research consultant.. pretty good book though. Might address you're question better..

http://insurancenewsnet.com/article.aspx?id=263152

http://thevegafactor.com/

very interesting book! Thanks a lot£¡

 

[mizhael]

Quote from Martinghoul:

And? What's the question?

The question is: the vol is so low, how can bank traders make money by selling the already-so-low vol?

 

[mizhael]

Quote from total_keops:

The difference between them and you, is this what you want to know? Like, could I just go surf in the morning, nap during the day and simply do my delta hedging at the close and profit from it? The answer is most likely not. Why? Transaction fees (institutional rate vs retail). This is the only difference between them and you, period. I call this comish arbitrage. Guys in banks think they are genius doing this or arbing some futs versus the cash. Their profit on average is smaller than the comish we pay as retail so there is no way we can do it and there is no way they can do it at home.

Interesting! What "futures vs. cash" trade are you referring to here?

 

[mizhael]

Quote from etemtezcan:

question maybe how to profit from it assuming that bank traders know something.
The way to sell volatility is sell straddles and strangles. But todays implied volatility in crude oil was about 30. yearly high/low was 42/25. Since it is in the low 30% of volatility yearly range (closer to yearly low than high), I dont think it may be a very good move.

I also think the vol is already too low, and also occasionally the vol spikes upon big events, but I knew these bank guys are making money but I don't know how they make money - do they have special strategies and smart algos?

 

[shortie]

Quote from mizhael:

... - do they have special strategies and smart algos?

Your Honor, he is leading the witness!

 

[hen12y]

agreed vol too low especially in GO and brent. every time ti moves away from the 100 mark vol goes bid, then comes off again as it tends back towards 100. i think people are nervous about another $10 movement one way or another but not sure which direction it's going to go in. also nervousness seems to be compounded that the further away you go from 100 the more vol goes bid, meaning the farther away we go from 100, the more likely it is to keep going.

 

[mizhael]

Quote from hen12y:

agreed vol too low especially in GO and brent. every time ti moves away from the 100 mark vol goes bid, then comes off again as it tends back towards 100. i think people are nervous about another $10 movement one way or another but not sure which direction it's going to go in. also nervousness seems to be compounded that the further away you go from 100 the more vol goes bid, meaning the farther away we go from 100, the more likely it is to keep going.

Maybe the bank traders have been selling vol for a while so they have actually riden the vol down so they made money?