You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Option replication and exotics journal
- Thread starter riskarb
- Start date
- Status
- Not open for further replies.
Quote from ssternlight:
Hope you've got it pegged. That would do serious damage to last year's P&L...much less this year's. I assume you are targeting @ 60%+ hedged into the barrier as usual? I don't follow the Japanese markets so I have no idea what the ratios are.
I was told to increase size if I was comfortable with doing so in special situations. I traded a 750k debit when the account was at a one mil gain. I've doubled the account since inception of the journal.
I'll increase the hedge proportion in-line with the gamma curvature -- so it will go to 100lots above '700.
Quote from riskarb:
The fund sub-account is trading North of $5mil and there was some fat-gammas associated with this trade. Granted, the Nikkei is on crack right now, but on occasion you've got to be a pig. I think we'll see 16,750 based upon stat- vols, but I feel we'll see some retracement coming. I will be buying 60 lot futures at each new handle.
I trying to learn from this thread. I know a little (real little) about Gamma. So when you say Fat Gamma. You are refferring to selling options that are overpriced? Please define Fat Gamma for a newbie. I know that negative gamma means writing insurance (lucrative business IMO) and positive gamma when buying options. I also know that the Gamma measures the rate of change of the Delta. So what is Fat gamma? Are you reffering to Gamma Scalping?
(sorry if the question seems dumb---I am looking at options more as a new years resolution. I usually trade outright futures)
thanks
Quote from riskarb:
The odds become so astronomical that it loses resolution. You can trade a barrier very close to atm, but the dealer will quote an arbitrary-large debit for the position. A 7day no touch on the SPX two points away on $100k may run $4k, but the dealer won't offer it for less than $15k. It has nothing to do with the model.
Yes, I know that: the odds are terrible, u would have to risk 80/90 to get 20/10.
Sometimes though it can be done on daily bets close to expiry if the underlying is usually volatile (better odds) but has very low probability of reaching the barrier.
Quote from TGM:
I trying to learn from this thread. I know a little (real little) about Gamma. So when you say Fat Gamma. You are refferring to selling options that are overpriced? Please define Fat Gamma for a newbie. I know that negative gamma means writing insurance (lucrative business IMO) and positive gamma when buying options. I also know that the Gamma measures the rate of change of the Delta. So what is Fat gamma? Are you reffering to Gamma Scalping?
(sorry if the question seems dumb---I am looking at options more as a new years resolution. I usually trade outright futures)
thanks
Not at all. Fat gamma relates to the higher expense the long gamma trader needs to pay as a function of increased volatility. Since these 7d bets are priced from stat-vol we call them gamma/vega trades. Selling fat gamma relates to a higher volatility, but these are gamma-dependent rather than vol-trades in terms of vega-sensitivity. Gamma becomes less sensitive to spot if vols increase, so it's said to trade "fat" ... other lingo would include fat sigma -- the debit trades inversely with vols, so the greater the vol/gamma risk, the smaller the debit requirement. My limit for this Nikkei trade was 65% of payout, so it's well within those parameters.
Quote from riskarb:
Correct, but more concerned with direction/fx translation. I can fund these in any currency, but it's held in JPY.
In a more general vein and not related to this particular trade, I have always found the currency risk to be a real disincentive against intraday trading of overseas markets.
- Status
- Not open for further replies.