Option replication and exotics journal

[riskarb]

Classic exotic terms:

down-and-in barrier options
down-and-out barrier options
up-and-in barrier options
up-and-out barrier options
asset-or-nothing binary options
cash-or-nothing binary options
gap binary options
supershare binary options
one-touch asset-at-hit options
one-touch cash-at-hit options
one-touch asset-at-expiry options
one-touch cash-at-expiry options
double barrier kick-in options
double barrier knock-out options
double barrier no-touch options
double barrier one-touch cash at hit options
double barrier one-touch cash at expiration options
double barrier one-touch asset at hit options
double barrier one-touch asset at expiration options
asset-or-nothing up-and-in digital barrier options
asset-or-nothing up-and-out digital barrier options
asset-or-nothing down-and-in digital barrier options
asset-or-nothing up-and-in digital barrier options
cash-or-nothing up-and-in digital barrier options
cash-or-nothing up-and-out digital barrier options
cash-or-nothing down-and-in digital barrier options
cash-or-nothing up-and-in digital barrier options

Vanilla synthetic relationship: Knockout + knockin = vanilla [same strike/tenor c/p]

 

[swampy]

What is the parity equation for exotic barriers.


assuming same barrier numbers

K/O +K/I =???


Thanks
Swampy

 

[riskarb]

Quote from swampy:

What is the parity equation for exotic barriers.


assuming same barrier numbers

K/O +K/I =???


Thanks
Swampy

= Vanilla

 

[riskarb]

Quote from riskarb:

DAX double barrier no touch[binary strangle] -- 4810//5005
Premium: 45,500 EUR
Payout: 100,000 EUR [includes prem paid]
Expires: Aug 26, 2005
Negative edge: 3,800 EUR
Neutrality: 4908

Resting hedge at 4945 & 4865 for 20 futures

Long 20 FDAX at 4954 avg. -- cash at 4546

 

[riskarb]

Quote from riskarb:

Long 20 FDAX at 4954 avg. -- cash at 4546

Sold 10 FDAX at 4936 -- long 10 from 4954.

Exotic blotter from inception of journal: +$166,500


Open positions:

Dax 8/26 double barrier no touch
+10 Sep FDAX futures from 4954

 

[riskarb]

Quote from riskarb:

Sold 10 FDAX at 4936 -- long 10 from 4954.

Exotic blotter from inception of journal: +$166,500


Open positions:

Dax 8/26 double barrier no touch
+10 Sep FDAX futures from 4954

Sold 10 FDAX at 4920 -- flat futures -- out $16k hedging this one. Unlikely that I will hedge further, will favor an offset.

Exotic blotter from inception of journal: +$156,000

 

[riskarb]

Took this recent downtick to sell SP Sep 1200p for 11%vol[$14.00*3]. Sold Sep futures into exposure at 1220.75: 1x3 ratio

 

[CPTrader]

Quote from riskarb:

Sold 10 FDAX at 4920 -- flat futures -- out $16k hedging this one. Unlikely that I will hedge further, will favor an offset.

Exotic blotter from inception of journal: +$156,000

It seems hedging is the hardest part of this strategy.

Do you have a sense of what your returns woudl be WITHOUT hedging?

Is there a fully systematic way of hedging? Or is this hedging heavily discretionary in nature?

What %age of profits come from hedging, from the actual options trade?

Keep up the good work and do keep teaching/sharing!

THANKS!

 

[riskarb]

Quote from CPTrader:

It seems hedging is the hardest part of this strategy.

Do you have a sense of what your returns woudl be WITHOUT hedging?

Is there a fully systematic way of hedging? Or is this hedging heavily discretionary in nature?

What %age of profits come from hedging, from the actual options trade?

Keep up the good work and do keep teaching/sharing!

THANKS!

Hedging accounts for approx 20% of gains to date; I chased the DAX as I had day-orders in place, not GTC, that I missed on the way up. The goal is to be accretive on hedging. I am running at stat-vol sigmas[1,2,3] to expiration for 20lot blocks per 100k EUR payouts, adjusted for forward-gamma. Whipsaws are the cost of doing business.

 

[CPTrader]

Quote from riskarb:

Hedging accounts for approx 20% of gains to date; I chased the DAX as I had day-orders in place, not GTC, that I missed on the way up. The goal is to be accretive on hedging. I am running at stat-vol sigma to expiration for 20lot blocks on 100k EUR payouts, adjusted for forward-gamma. Whipsaws are the cost of doing business.

Thanks for sharing.

Yep, "whipsaws" can be a painful cost of businesss.