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Option replication and exotics journal
- Thread starter riskarb
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Quote from riskarb:
Covered my ER2 short[669] at an average 665. Don't want to carry a short into all of Friday's data, especially the likely-strong UofM sentiment.
That's more or less what I was afraid might happen -- that strike was really close. What was the additional cost on that one? It would be nice to keep track of the results as well as the positions and the reason taken.
Quote from ssternlight:
That's more or less what I was afraid might happen -- that strike was really close. What was the additional cost on that one? It would be nice to keep track of the results as well as the positions and the reason taken.
No, I was short ER2 futures. I have had this ER2/YM position for a few days. Flat P&L with the futures gain.
I am simply showing ratios[2:1] and not actual size-traded. I was using closing prices from yesterday, not fills.
I'm confused.
The original entry above shows you selling puts....
The position was
long 2 YM at 10600 and
short 1 ER2 at 650.
As for the P&L, obviously I was interested in tracking it on a unit basis. The quantity you actually trade is irrelavant I'd think.
The original entry above shows you selling puts....
The position was
long 2 YM at 10600 and
short 1 ER2 at 650.
As for the P&L, obviously I was interested in tracking it on a unit basis. The quantity you actually trade is irrelavant I'd think.
Quote from ssternlight:
I'm confused.
The original entry above shows you selling puts....
The position was
long 2 YM at 10600 and
short 1 ER2 at 650.
As for the P&L, obviously I was interested in tracking it on a unit basis. The quantity you actually trade is irrelavant I'd think.
I had posted an ER2 short futures in the "ES is getting toppy" thread. I realize the scale is unimportant.
I had traded this spread the previous day, as well as an atm position. I figured I would use closing prices to outline the positions.
I didn't think it mattered as most of these aren't time-critical as going long/short futures.
Quote from riskarb:
I had posted an ER2 short futures in the "SP i getting toppy" thread. I realize the scale is unimportant.
OK,
So that thread is not relevant to the positions described in this thread.
So, I guess the question is now that the ER2 650 Short Put position is ITM do you plan to do anything to manage it at this point?
Appreciate your keeping this journal.
Sam
Quote from ssternlight:
OK,
So that thread is not relevant to the positions described in this thread.
So, I guess the question is now that the ER2 650 Short Put position is ITM do you plan to do anything to manage it at this point?
Appreciate your keeping this journal.
Sam
We're at 66100 basis Sep ER2... I'd expect some movement in my YM position when the ER2 reaches the 650 strike. So I am unlikely to do anything with it at this point. I am flat P&L on it due to the futures position, but I realize it isn't germain as I didn't post it here.
I mentioned in the initial post I won't be hedging it.
Quote from riskarb:
We're at 66100 basis Sep ER2... I'd expect some movement in my YM position when the ER2 reaches the 650 strike. So I am unlikely to do anything with it at this point. I am flat P&L on it due to the futures position, but I realize it isn't germain as I didn't post it here.
I mentioned in the initial post I won't be hedging it.
OK,
So, on the trade as established the Er2 side would be @ 4pts in the red (adjusted for delta, etc...) and the YM position is also moving slightly against the original basis as well.
Is there a way you could explain the initial risk/reward on a unit basis that I could understand. I'm still trying to come to grips with the basics of this trade.
As far as I can tell the aggregate position has unlimited downside on the short put and the correlations are strong enough that you are likely to see YM move down as well in that event.
As I read this position -- and again I am just trying to learn here -- it is basically a long directional YM position offset by the premium of the ER2 short put. Since Er2 is more volatile than YM, the downside risk is actually amplified by the ER2 short put while the upside gain is capped by the premium received.
Do I have this roughly right or am I missing some other pieces of the puzzle?
Thanks again for the help,
Sam
The ER2 is more volatile, w/o a doubt. The 2:1 ratio favoring YM leans the position short delta. The YM vol is cheaper, thus the gamma is more highly leveraged[dgamma+].
In short, the +vol/vega/gamma is hoped to overcome the correlation risk. The position is intended to be held to expiration. Notional risk on one ER2 is $66,000 -- notional value of two YM's is $106,000. The 2:1 ratio of YM/ER2 is meant to compensate for spot volatility and correlation risk.
In short, the +vol/vega/gamma is hoped to overcome the correlation risk. The position is intended to be held to expiration. Notional risk on one ER2 is $66,000 -- notional value of two YM's is $106,000. The 2:1 ratio of YM/ER2 is meant to compensate for spot volatility and correlation risk.
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