Option replication and exotics journal

Status
Not open for further replies.
Bought >100 GOOG Oct 280/300/320 butterflies at 4.60 on ISE. Some were calls, some irons. Debit risk of 4.60, obviously the iron was done at a credit.

Will follow-up, but won't be reflected in exotic blotter.

Ursa's misgivings about legging flies has me buying outrights! [Just kidding my friend]
 
I thought replication would be cheaper over the longer run than dynamic, but maybe not. I'm just scratching the surface on exotics. I had to break out an old text book to refresh(Hull). But he only has one little chapter on this. I need a more thorough text.

Anyway....good work. Good journal.


BTW: you're up on your hedges too?!? Didn't anyone ever tell you that you're suposed to lose money on your hedges? :) ;-)




Quote from riskarb:

Replication is very costly. I can purchase dgamma/dS more cheaply in Dow barrier-touches, but it suffers due to corr and tracking on a narrow index. I would rather buy convexity in vanilla otc or listed-gamma for the 1-correlation, and that's why I've been trading the hybrids. I would enter the variance market if not for the give-up. Thus far I am up on primary and futures hedge, so I am generally pleased with the results.

My only concern is trading downside-gamma into the barriers through the purchase of vanilla straddles. Would prefer to be +dgamma, but the exposure can't be matched with vanilla strangles. Buying downside gamma is an issue, but mitigated by the large-gamma I am buying in the short term structures.
More...
 
Replication is bounded-risk, so it may very well be cheaper in the long run -- a "pay me a little now, or a lot later" scenario in trading futures against the gamma position. There is some advantages to trading discrete deltas in spot/gamma. I can offset my hedge prematurely into fixed-risk, due to the null-gamma beyond the barrier, and know that my risk is bound to the strike.

On the previous SPX barrier, I sold my long ES hedge with cash at 1236+ with a barrier at 1238 basis cash, which covered a majority of my debit risk on the barrier. Market reversed and traded to <1233, which allowed for another opportunity to get long into the barrier.

Yeah, I haven't broken-down the numbers on hedge/primary, but off-hand I'd say that 20% of the gain is attributable to hedge.
 
Quote from riskarb:

Nikkei double barrier no touch -- 12,000//12,900
Premium: 13,060,000Y
Payout: 22,000,000Y [includes prem paid]
Expires: Sep 16, 2005
Negative edge: 907,000Y

Gamma is dangerous in the Nikkei, but I've got some room to maneuver due to the blotter's mark to market. Wanted to get short some deltas as well. I am bumping-up against my self-imposed trading limits on index exotics, but will likely increase max debit to $500k next week, depending on how my flat to short direction plays-out.
More...

Hammered on the Koizumi mandate. Sliced through the upper barrier on the Nikkei open. I had no idea the election was in view when I traded the double, live and learn. Won't happen again.

Exotics blotter: +$137,200
 
Quote from riskarb:

Double Barrier + long vanilla straddle = hybrid short backspread

DAX double barrier no touch -- 4850//5150
Premium: 122,000 EUR
Payout: 200,000 EUR [includes prem paid]
Expires: Sep 16, 2005
Negative edge: 9,600 EUR

Long 200 Dax Sep 5000 vanilla straddles at 89.00
Prem Paid: 89, 89,000 EUR on 200
Expires: Sep 16, 2005
Vol: 13%

Hybrid loses no more than 61,000 EUR at the barrier.
More...

Sold the 200 vanilla straddles at 60.80 at 7:00 - 7:15 EDT this morning. Lost a bit on currency as well; the rationale for the offset -- I don't see the risk on the Dax double > the decay on the vanilla.

Sold 20 of the ES futures hedge at 47.50... with the idea that the Dax double will be inviolate, and wanting a little short-delta here in SPX with the Dax position at neutrality. Will be doubling my exposure, even in light of my recent performance.


Exotics blotter: +$102,300


Open Positions: DAX double; SPX double; long 50 Dec ES futures
 
Nikkei double barrier no touch -- 12,250//13,250
Premium: 30,240,000Y
Payout: 50,000,000Y [includes prem paid]
Expires: Sep 19, 2005
Negative edge: 3,700,000Y

Biggest since inception of journal. A bit of a Hamlet-esque revenge trade. Solid vols trading post-Koizumi victory. Expect some downside over the next few days on Nikkei cash due to general malaise expected in world index markets this week.
 
FWIW,

My Witch tells me that the stock market top will happen on around September 23rd. My Witch has made me money on balance. Sometimes big money. Just thought I would flip this out to you guys.
 
Status
Not open for further replies.
Back
Top