Option replication and exotics journal

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My first carry trade log. I will convert to USD on FX exotics, but the spot FX positions will remain in their respective base-currencies for obvious reasons. For convenience and ease of reading I will define a USD pip value with each trade.

Long 7mm units GBP/JPY at 212.64 [$580 USD current pip value]

GBP/JPY 215.20 no touch
Premium: $188,600
Payout: $302,100 [includes prem paid]
Expires: Dec 30, 2005

Position earns $149,000USD on spot if the no touch barrier is reached, or an approx net-position [loss] of [$39,000USD] before interest carry.

This trade is analogous to any of the short synthetic equity index [exotic] trades I've done. I'll update the position when/if the barrier is reached, or downside paring of spot or touch is needed. Interest carry to date in USD will be noted as well. I tend to marry a spot position for as long as I can; due to 1) execution edge loss, and 2) limited +carry-pairs offering reasonable exotic markets.
 
Quote from mahras2:

Thanks B for explaining the carry trade. Sheds some light into proper hedging.
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YW, B. I don't know how proper it is, but it has some cushion. I actually am beginning to hate this trade -- will likely reduce the spot position to 5mm units.
 
Hmm the yen did take a breather and the GBPJPY had been JPY negative for a while. Dont really keep up with that pair so dont know how it will project into the future.

I am liking the carry trading idea over at Electric's thread. Just a little worried about the full exposure and problems that may show up in a high stress event. Otherwise I think its great stuff.
 
Quote from mahras2:

Hmm the yen did take a breather and the GBPJPY had been JPY negative for a while. Dont really keep up with that pair so dont know how it will project into the future.

I am liking the carry trading idea over at Electric's thread. Just a little worried about the full exposure and problems that may show up in a high stress event. Otherwise I think its great stuff.
More...

I'm expecting a test of 210 on GBP/JPY before the exotic goes off.
 
Quote from riskarb:

Long 7mm units GBP/JPY at 212.64 [$580 USD current pip value]



Sold 2mm units at 212.73 -- 5mm units remain against the 215.20 no touch. +$5,200
 
Hi Risk arb
What is the +ve interst spread offered by UBS while shorting yen & Buying Pound?
NZ$ offers the highest interst among the majors.Is it worthwhile?
No touch means - Do you get paid only when 215.20 is touched?If not Do you loose the premium?
I understand that you can keep the interest(will cushion your loss?)even if touch barrier is not reached?


Yours truly was a import export trader based in Asia for a long time.Buying large quantities of goods in Yen/Euro/S$ & selling to China (Via Hong Kong- US$:HK$ Peg) forced me to cover the currency risk thro forwards at the Bank. {Then it led to some speculation in spot forex & then on to stocks >Equity options.}
Hong Kong /Singapore Banking systems are truly phenominal.Retail clients can maintain Time deposits (as low as 1 month) IN NZ$,A$,CAD$,GBP apart from Thai Bhat,Peso,Rupiah etc.I keep some% of cash assets in high yield currencies (with out leverage) just for the interest rate.
Look forward to your posting in this thread
Sammy
 
Quote from riskarb:

My first carry trade log. I will convert to USD on FX exotics, but the spot FX positions will remain in their respective base-currencies for obvious reasons. For convenience and ease of reading I will define a USD pip value with each trade.

Long 7mm units GBP/JPY at 212.64 [$580 USD current pip value]

GBP/JPY 215.20 no touch
Premium: $188,600
Payout: $302,100 [includes prem paid]
Expires: Dec 30, 2005

Position earns $149,000USD on spot if the no touch barrier is reached, or an approx net-position [loss] of [$39,000USD] before interest carry.

This trade is analogous to any of the short synthetic equity index [exotic] trades I've done. I'll update the position when/if the barrier is reached, or downside paring of spot or touch is needed. Interest carry to date in USD will be noted as well. I tend to marry a spot position for as long as I can; due to 1) execution edge loss, and 2) limited +carry-pairs offering reasonable exotic markets.
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This is almost a 1:3 reward to risk... i thought u usually prefer atleast a 1:1
 
Quote from Trend Fader:

This is almost a 1:3 reward to risk... i thought u usually prefer atleast a 1:1
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Yeah, fx vols are crap, hence the poor r/r, but somehwat mitigated by the carry.
 
Quote from Sammy Iyer:

Hi Risk arb
What is the +ve interst spread offered by UBS while shorting yen & Buying Pound?
NZ$ offers the highest interst among the majors.Is it worthwhile?
No touch means - Do you get paid only when 215.20 is touched?If not Do you loose the premium?
I understand that you can keep the interest(will cushion your loss?)even if touch barrier is not reached?
Sammy
More...

I'll let you know when I take a look at my carry-credit on my blotter. I keep a spreadsheet with the carry adjusted for leverage, but haven't updated the sheet.

I lose the premium if the 215.20 barrier is reached. I receive $300k inclusive of the premium paid + the interested credit if the 215.20 barrier is not reached.
 
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