I've traded some 10 lots through IB in options and futures, but most through another clearer. The options are fairly liquid on the SGX, but some of the markets disappear on certain strikes. You calc parity and make a market, but it would be less of a hassle if there was always an indication. The atm strikes are usually 40up. ATM vols are 18%, but stat vol is a bit higher.
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Option replication and exotics journal
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I've traded some 10 lots through IB in options and futures, but most through another clearer. The options are fairly liquid on the SGX, but some of the markets disappear on certain strikes. You calc parity and make a market, but it would be less of a hassle if there was always an indication. The atm strikes are usually 40up. ATM vols are 18%, but stat vol is a bit higher.
r/a , did you ever noticed rise in vols as they claiming in this article ?
http://www.risklatte.com/volatilityToday/volatilityToday050706a.php
http://www.risklatte.com/volatilityToday/volatilityToday050706a.php
Nikkei cash double no touch -- 15,600//16,900
Premium: $1,206,000
Payout: $2,000,000 [includes prem paid]
Expires: Jan 11, 2006
I won't go into fund-stats as it would require interpolated PnL which isn't indicative of the peaks and troughs seen in the account. The account will hit 6M if this trade misses the barriers. My cut will increase as well. Wish me luck.
FWIW, I will gamma-trade this with SGXNK March futures or some vanilla options. I am hoping to avoid replication this week. Regardless, I will trade some [static] vanilla or [dynamic] futures hedge before expiration.
Premium: $1,206,000
Payout: $2,000,000 [includes prem paid]
Expires: Jan 11, 2006
I won't go into fund-stats as it would require interpolated PnL which isn't indicative of the peaks and troughs seen in the account. The account will hit 6M if this trade misses the barriers. My cut will increase as well. Wish me luck.
FWIW, I will gamma-trade this with SGXNK March futures or some vanilla options. I am hoping to avoid replication this week. Regardless, I will trade some [static] vanilla or [dynamic] futures hedge before expiration.
Quote from domestic:
if you do not hedge this, double no touch; what is your risk? also, if you do hedge, can it ever come close to covering this risk?
appreciate your answer, short is fine.
My risk is the debit paid, $1.2M. I've often traded the hedge into the barrier so that I've earned the payout on the primary position and on the hedge as well. In that respect, they become analogous to a short synthetic straddle into the barrier at risk. It's a simple matter to solve for the hedge requirement into the risk. The trick is to hedge discretely and minimize whipsaw.
You run the risk of spot trading through your hedge levels if trading discretely... but you risk whipsaw if trading the hedge in a large, arbitrary fashion. The "art" is in managing diametric conditions.
The hedge maths are far more robust than in hedging vanilla-gamma. The downside of hedging exotics is the jump-risk on the underlying contract. The gamma is so profound near the barrier that you'd need to hedge nearly 100 delta to carry an appropriate hedge -- the atm hedge req in vanilla is only 50 when trading atm.
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