one-offs

[destriero]

vol-arb. long vol-corr, Derman and tails. Zero vol-shift. Pure arb.

 

[destriero]

Huge dgamma into bear tail +vol-corr. Sticky D upside. Cannot lose.

 

[destriero]

Skew modality flips at the equity peak -: sstrike downside; sdelta upside.

Puts are the revenue-side of the risk-reversal as singles, but call spreads are the revenue-side when trading verts. Think about it.

 

[tsfx]

vol-arb. long vol-corr, Derman and tails. Zero vol-shift. Pure arb.

View attachment 327225

I'm trying to understand this.

Are these long OTM calls, short ATM puts and long OTM puts ?

 

[Specterx]

How do these exist? Like even lacking any clue about options math or dynamics, isn’t it trivial to brute-force scan the entire listed options space for combos with a PnL graph like this?

 

[destriero]

How do these exist? Like even lacking any clue about options math or dynamics, isn’t it trivial to brute-force scan the entire listed options space for combos with a PnL graph like this?

It's complex to model. A threshold needs to be hit on 1st to 2nd decile vols and/or switch values (vol-backwardation).

 

[destriero]

Switch Lock -> D1/D1 backwardation (duration) -> $0 margin under PM (credit req/adds like a short box cr >strikes)

You can see that I am not stressing vol.

 

[destriero]

It's complex to model. A threshold needs to be hit on 1st to 2nd decile vols and/or switch values (vol-backwardation).

Generally vols need to be low/under 20 on SPX or the fly risk reversal needs to be over 2.0.

 

[destriero]

I'm trying to understand this.

Are these long OTM calls, short ATM puts and long OTM puts ?

No, it's net long tails and the tails are all inside 30-delta.

 

[destriero]

Tails maintain convexity from 0-inf. Small haircut ($3K debit). Crazy rho on long-dated but that is simply opportunity cost (moot) and this is a 2W combo. Allows you to trade short-gamma locally with no bear-risk.

Bear tail is conservative due to vol-corr and upside due to stickiness, but I typically model a touch of the the bear trough to x as vol-corr (- to index) will shift the curve higher.

It's an ideal portfolio prot. I arb VX against it (long switch say Dec/Jan for convergence gains as SPX/cash convexity exceeds leverage to VX). IOW, you can arb the long switch in VX against VIX SOQ.