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Option replication and exotics journal
- Thread starter riskarb
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Quote from riskarb:
The AUM in the sub-account of the master feeder devoted to index/fx exotics is $5mil. 3.4% since inception of the journal. I personally represent/receive approx 20% of the earnings on this sub-account through my wife's ownership-interest in the master-feeder.
Thanks for riskarb for sharing.
How do you asess your daily risk exposure? What %age of the 5m capital base do you on average deploy to margin for trades?
Are you aware of any funds that trade solely a strategy similar to the one you have in this journal.
What is the hidden risk or strategy-speciifc risk inherent in this strategy. I.e. what keeps you up at night?
Are you limited only to FX & global indices?
Thanks again
Quote from CPTrader:
Thanks for riskarb for sharing.
How do you asess your daily risk exposure? What %age of the 5m capital base do you on average deploy to margin for trades?
No more than 3% per asset class[index, fx, debt, etc], and no more than 10% in notional exposure across classes in exotics. The risk is defined by the debit requirement and assumes corr-risk at 1.
Are you aware of any funds that trade solely a strategy similar to the one you have in this journal.
Yes, but it's not my place to address what others are doing
What is the hidden risk or strategy-speciifc risk inherent in this strategy. I.e. what keeps you up at night?
The spot hedging into null-gamma when the event-barrier is hit in a no touch. I only need to know "risk to strike" but the futures whipsaws are a concern. I am adding convexity to my hedging method to reduce whipsaw, but it increases scale near the barrier which increases gap-risk on the hedge.
Are you limited only to FX & global indices?
Yes, self-imposed. I don't have any experience in other asset-classes. I won't trade what I haven't modeled
Thanks for riskarb for sharing.
How do you asess your daily risk exposure? What %age of the 5m capital base do you on average deploy to margin for trades?
No more than 3% per asset class[index, fx, debt, etc], and no more than 10% in notional exposure across classes in exotics. The risk is defined by the debit requirement and assumes corr-risk at 1.
Are you aware of any funds that trade solely a strategy similar to the one you have in this journal.
Yes, but it's not my place to address what others are doing
What is the hidden risk or strategy-speciifc risk inherent in this strategy. I.e. what keeps you up at night?
The spot hedging into null-gamma when the event-barrier is hit in a no touch. I only need to know "risk to strike" but the futures whipsaws are a concern. I am adding convexity to my hedging method to reduce whipsaw, but it increases scale near the barrier which increases gap-risk on the hedge.
Are you limited only to FX & global indices?
Yes, self-imposed. I don't have any experience in other asset-classes. I won't trade what I haven't modeled
Quote from riskarb:
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.
Should have simplified the structure -- it's synthetically-equivalent to a credit, bear-vertical with +edge from skew.
I am going to limit this journal to exotics and hybrids from now on as I trade very little vanilla replication. The hybrids will consist of vanilla/exotic flys+condors, etc.
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