Option replication and exotics journal

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Quote from riskarb:

Yeah, I hated being in it at 21260. I had to dump the remaining spot when it traded to 11s. We're at 07s now and I am tempted to buy, but I won't. The upside barrier is 800 pips otm, trading at $250k.

I am going to run a carry matrix and reduce the exotics on fx. Stat vols are > implied vols by a wide margin, not good for selling gamma. Sorry guys, but that's the last fx carry/exotic for a little while.
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A smart exit -- especially considering what holding would have done... I like/understand the index trades better. Currencies have a lot of volatility to them.
 
Quote from riskarb:

Yeah, I hated being in it at 21260. I had to dump the remaining spot when it traded to 11s. We're at 07s now and I am tempted to buy, but I won't. The upside barrier is 800 pips otm, trading at $250k.

I am going to run a carry matrix and reduce the exotics on fx. Stat vols are > implied vols by a wide margin, not good for selling gamma. Sorry guys, but that's the last fx carry/exotic for a little while.
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I agree I noticed that currency whip around way too much and the premium being received for selling a no touch is not reasonable on a risk:reward basis.

That leaves me to the conclusion that It might make sense to just trade outright touch exotics directionally similar to going long call or put.
 
Thanks. pound/yen stat vols are trading almost 2:1 over implied. I am kicking myself for not buying a touch under the market; so I am going to play some touch gamma until I see vols representative of what's going on in the spot-market.
 
This JPY advance is pure chaos for trading the Nikkei. Was short the [facocked] Jan 15250//16000 outside strangle, but bought back the 16000 calls and doubled the puts/futures hedge converting to a slightly-weak synthetic short straddle at 15350 neutrality. Delta bleed rallies the neutrality over time, but slowly. Short a bunch of the Feb 15500 combos at 1100. The plan is to fly them off with each 100 in edge on the short combo. 10% converted to fly at each handle in gains.

It's a nice market for P-coast traders as the cash market closes at 10pm. Large contract and the best vol[14% atm] of any of the G8 index markets. ATM spreads are typically 10-wide[$40] and indicative of spreads across the strikes. Excellent for straddles, overwrites, ratios... I recommend you guys take a look at SGX Nikkei futures and options. Ticker "SGX NK" on IB.
 
Quote from riskarb:

I feel confident that the index vol-trade for the month is selling the ER2 JAN 680 straddle >30.00. Vol-line of 18%+
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How does that compare to the historical vol for ER2 -- i.e. what decile is that over the last year?
 
Quote from ssternlight:

How does that compare to the historical vol for ER2 -- i.e. what decile is that over the last year?
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I can check it, but I think it's around a 4.
 
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