Option replication and exotics journal

[riskarb]

Quote from riskarb:

Sold Mar SGX Nikkei futures at 16,700.

Covered short at 16,570

 

[mahras2]

Was that based on your trading model or more of a discretionary trade? Great to see profits either ways tho

 

[riskarb]

Quote from mahras2:

Was that based on your trading model or more of a discretionary trade? Great to see profits either ways tho

Somewhat of a hybrid, but based upon a stat vol projection on cash that had me selling at 16700-720 on futures. Thanks.

 

[mahras2]

Quote from riskarb:

Somewhat of a hybrid, but based upon a stat vol projection on cash that had me selling at 16700-720 on futures. Thanks.

Sounds great man. Hope that acct hits 200% returns for the year since the start of this journal.

 

[riskarb]

Thanks B. From your mouth to the market-God's ear.

 

[momoneythansens]

Bad luck on the hit. Should be OK with this one after a pullback, though it could be close if last week's madness continues. Good luck!

Quote from riskarb:

Dax cash single barrier, no touch -- 5760
Premium: $1,205,000
Payout: $2,000,000 [includes prem paid]
Expires: Feb 10, 2006
Negative edge: a lot
Strike/barrier volatility: 13.00% [up from 12.20 yesterday]
Symmetrical hedge: +380 March FDAX futures
Initial hedge: +180 March FDAX from 566600 average

Weak upside^2 [g/d] short exotic straddle

__________________________________________________

Strip vols continue to rise; feel fortunate to receive a 13 on the vol-line for the barrier volatility. I would trade it larger, but this upside vol is chaotic. 14d hold on this one.

Sub-account took a net $506,000 hit on previous. Feel the +expectancy of the current trade is roughly in line with the hit-taken, even in light of the weak hedge at +180 FDAX.

 

[riskarb]

Quote from riskarb:

Initial hedge: +180 March FDAX from 566600 average

Long another 50 from 568400

 

[fader]

Quote from riskarb:

Strip vols continue to rise; feel fortunate to receive a 13 on the vol-line for the barrier volatility.[/B]

hi riskarb - where are you getting quotes for volatilites shorter than the front option month? i.e. my data shows $VDAX has not been much below 13 this year, i am assuming that are you getting 12%-13% for the duration of your trade, i.e. approx. 1/2 of the 30 day period used for vdax calcs? (or is my data wrong?... looks ok, i've checked against the deutsche-boerse site) - also, are you doing these barriers OTC or is there a more centralized market? - thx, great journal, very interesting - all the best.

 

[riskarb]

Are you using strip vols? I was referring to the vanilla, exchange call struck at 5750 which carries -skew -- the strike which best-matched the barrier, and I believe the 25d otm call was printing 13vol at the time. It's important to use strike vol/strips, otherwise you'll overprice[underprice] call barriers[put barriers].

I trade these through 3 EUR-based ibanks.

 

[fader]

ok thanks a lot riskarb - yes $VDAX is calculated much like the vix, using ATMs plus OTM strips, that's what i was looking at - i have just checked out the current skew and i see that the IV difference between the current VDAX and 100-200 pt OTM calls works out to (negative) 1.5%-2% difference, which is the same as when you entered your trade, so it makes sense, i get to the same numbers now.. - this week-plus long rally in the dax is culminating today with yet another new multi-year high, i guess the weakness in the euro is a factor but also seems like so far the strong momentum is just carrying from last year's strong rally, although the IV is on the rise.