No-Risk-of-Capital Trading Strategies

Quote from frank99:

Is there anything that would come close to a vanilla call?
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Frank, I answered your post yesterday on the Oanda forum. You can theoretically duplicate a European vanilla call with an infinite strip of digitals set at every price increment from your vanilla call strike on up. In practice, with Oanda's boxes, you would be taking on too much negative edge even with a crude approximation of the vanilla call payout -- you would be way overpaying to buy and way undergetting to sell.

It would be easier for you to just trade vanilla FX futures opeions, or dealer vanillas.
 
Quote from frank99:

Atticus,

Thanks for the reply. Ok, so now I believe it.

I tried to come up with something in a Demo, but didn't have any luck either.


Is there anything that would come close to a vanilla call?

Frank
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Frank, the replication of a vanilla call is a topic that I wanted to start a post about. It is forthcoming. There is more to this topic, and I have many questions myself as well (particularly replication on the short side).

If you want to replicate the buying of let's say an ATM call. You buy half the position, if pair goes down (delta is now less) you sell a bit to reproduce the new delta, if it goes up you buy more to produce the new delta, etc, etc.

You need to know the vol of the pair, and a calculator to know the call delta, and then you adjust it so that your delta is similar to the call delta obtained using the calculator.
 
Quote from Kevin Schmit:

Frank, I answered your post yesterday on the Oanda forum. You can theoretically duplicate a European vanilla call with an infinite strip of digitals set at every price increment from your vanilla call strike on up. In practice, with Oanda's boxes, you would be taking on too much negative edge even with a crude approximation of the vanilla call payout -- you would be way overpaying to buy and way undergetting to sell.

It would be easier for you to just trade vanilla FX futures opeions, or dealer vanillas.
More...

Kevin is right, but as he states, there is no practical equivalent/synthetic. There is no digital-equivalent on Oanda, as the box must be =/> 10 pips high. Just as a single American vanilla-vertical at tick-strikes would replicate the touch. Best-practice on a single position would be an otm bull-delta fwd start. Or a combination of Euro and American conventions in a risk-reversal.

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Quote from atticus:

Kevin is right, but as he states, there is no practical equivalent/synthetic. There is no digital-equivalent on Oanda, as the box must be =/> 10 pips high. Just as a single American vanilla-vertical at tick-strikes would replicate the touch. Best-practice on a single position would be an otm bull-delta fwd start. Or a combination of Euro and American conventions in a risk-reversal.
More...


A concurrent touch is a digital equivalent -- the fwd start would not be due to the 10-pip minimum.
 
Quote from atticus:



A concurrent touch is a digital equivalent -- the fwd start would not be due to the 10-pip minimum.
More...

American, of course. I need a nap.
 
Quote from riskfreetrading:

Frank, the replication of a vanilla call is a topic that I wanted to start a post about. It is forthcoming. There is more to this topic, and I have many questions myself as well (particularly replication on the short side).

If you want to replicate the buying of let's say an ATM call. You buy half the position, if pair goes down (delta is now less) you sell a bit to reproduce the new delta, if it goes up you buy more to produce the new delta, etc, etc.

You need to know the vol of the pair, and a calculator to know the call delta, and then you adjust it so that your delta is similar to the call delta obtained using the calculator.
More...

What are you buying? A 25D upside touch?
 
Thanks Everyone for the replies (Kevin, atticus, RiskFree). I appreciate the responses. This was very helpful in my understanding on how they work. I will keep experimenting in my demo. I could get another broker that offers the plain vanilla options, but I would like to stick with Oanda if I possible which is why I kept persisting.

I hope this discussion continues.



Frank
 
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