Option replication and exotics journal

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Exotic blotter tally: +$72,500 to date

Off the run: Dax 5040//4825 double barrier no touch, full payout

Excludes open positions:

USD/CAD 1.2095 single touch [8/19] ... Selling 1mm resting if we get to 1.2040

Nikkei 11650//12580 double barrier no touch [8/19] ... was nicely short delta, now somehwat neutral and I expect to earn the payout on this one barring a complete meltdown. Will hedge with futures below 11900
 
Quote from riskarb:

USDCAD barrier[binary long call] -- 1.2095
Premium: 15,200 CAD
Payout: 25,000 CAD [includes prem paid]
Expires: Aug 19, 2005 at 10am EDT settle
Negative edge: 1,200 CAD

Well within one sigma at the barrier. The gamma is incredibly-cheap considering all the spot vol. Tried to make a case for short gamma, but couldn't... so here's a loooong gamma play. Wanted a 1:1 r/r, but didn't want to extend past 1.2100 on spot to get it.
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Sold 1mm USD/CAD at 1.2040 which was a resting sell -- nothing done on exotic; it's showing a mark of 18,000 CAD on the exotic with USD/CAD at 1.2066.

Will cover 1mm short at 1.2099, if/when a hit is made on the barrier.
 
Quote from riskarb:

Exotic blotter tally: +$72,500 to date

Off the run: Dax 5040//4825 double barrier no touch, full payout

Excludes open positions:

USD/CAD 1.2095 single touch [8/19] ... Selling 1mm resting if we get to 1.2040

Nikkei 11650//12580 double barrier no touch [8/19] ... was nicely short delta, now somehwat neutral and I expect to earn the payout on this one barring a complete meltdown. Will hedge with futures below 11900
More...

Exotic blotter tally: +$74,000 to date

Sold the USD/CAD barrier touch at $22,100 with USD/CAD at 1.2088; offset 1mm USD/CAD spot at 1.2090. +6,900 on exotic, (5,000) on spot. +1,900 net USD/CAD. USD/CAD is off the run.

Excludes open position:

Nikkei 11650//12580 double barrier no touch [8/19]
 
Missed trading a new dax exotic today. Expect a nice rally here across the board as crude will likely see 6000 soon. Nikkei double isn't at risk, but I'll keep an eye on going long > 12,400
 
OIH short/risk conversion:

Sold 111.54 on OIH
Sold Sep 110 puts at $3.00 [30.5%vol]
Bought Sep 115 calls at $2.38 on BOX [28.5%vol]

$.62 in net credit. Approx. $.35 edge due to -skew. Risk is capped at 115. Risk conversion was traded against a pre-existing short in OIH. Traded the conversion with OIH shares at 111.54L.
 
Quote from riskarb:

Missed trading a new dax exotic today. Expect a nice rally here across the board as crude will likely see 6000 soon. Nikkei double isn't at risk, but I'll keep an eye on going long > 12,400
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I'm curuous where do you trade yoru exotics, where do you trade your futures & FX hedges, equities??
 
THX

Good job!

I wonder if you couldnt gte better results trading the underlying only or just trading vanilla products. My fear with exotics is liquiidty, mismarks and high "negative edge".

What say you?
 
Quote from CPTrader:

THX

Good job!

I wonder if you couldnt gte better results trading the underlying only or just trading vanilla products. My fear with exotics is liquiidty, mismarks and high "negative edge".

What say you?
More...

Trading the underlying directionally? I much prefer exotics to vanilla, although they're not nearly as transparent. Nobody is forced to trade; if the vega as expressed by spot vols is too cheap I can pass on the quoted market. I am willing to give-up a day or two in edge for the opportunity to trade short gamma into limited risk.

Hedging is done with conventional, exchange product. So I see it as the best of both worlds. OTC, limited risk short gamma + trading hedges at fairval.
 
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