OTC options

Aquarians said:
>> As long as you're happy with the idea that the prices of the "capped/floored" futures contracts could be different to the vanilla, I am happy to make you a mkt.

Yup, I don't care much for the future price (and spread) as long as it's within reason. I get my profits from trading options and figuring out the right volatility so a little spread (and profit for the futures guy) is not bothering me.

So you say you'd be willing to be a counterpart for such contracts. Now we must find a broker or some OTC exchange, like mail or something :)
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I can show you a 50 / 51.5 mkt, in the case you have shown...

Obv, this is based on a hypothetical case where there is a reasonably liquid mkt for the underlying and vanilla calls and puts.
 
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Why not build a synthetic short and add some OTM call and puts to cap it?

Long put + Short call ATM
Long call OTM
Short put OTM
 
I was going to provide some thoughts on the topic (since I have traded OTC products for some 15 years both as MM and as a PM) but after reading my only comment is LOL.

PS. To get an ISDA these days you need 150+ AUM
 
sle said:
I was going to provide some thoughts on the topic (since I have traded OTC products for some 15 years both as MM and as a PM) but after reading my only comment is LOL.

PS. To get an ISDA these days you need 150+ AUM
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Come on, make a mkt for the man, sle... We could do some damage here.
 
>> Tibster: Why not build a synthetic short and add some OTM call and puts to cap it?

Because I want to buy or sell those options myself :)

>> sle: I was going to provide some thoughts on the topic (since I have traded OTC products for some 15 years both as MM and as a PM) but after reading my only comment is LOL.

Well, please develop on that League of Legends (LOL).
 
I'm with sle on this one, you want something for nothing and you don't seem to grasp that you do. If you want capped risk you're gonna pay for it. The amount you're gonna pay is at least as much but probably more than the synthetic options to achieve the same thing that have been presented to you. Anything else violates risk free arbitrage and no one is going of offer to be on the losing end of that. We all get what you want, it's just not achievable.
Have you looked at spreads on Nadex, they're a good example?
 
Aquarians said:
Say current spot price of the underlier (GM) it's $50 and the ATM vol is 30%.
The future expiration is in one month. Two standard deviations around spot is then about $10, so the cap is +/- $10 around strike price.
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It's called the 40-60 strangle and at that IV will trade around 15 cents... The 40 put will be 0.05@0.10 and the 60 call at 0.01@0.05

And that's probably what @Martinghoul means with the price of the capping instrument.

So if you're talking about a capped CFD (mind you a CFD is just a different name for a future)... in that example the spot is 50 and the 1-month-10%-capped-spot/cfd/future is 50.15.

You're not getting anything for free mate...
 
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I still think you don't understand what I'm proposing, but that's also my problem for not explaining it right. I'll refine the idea and put in in a written form (i.e. publish an article), get back to you and see where it goes.
 
Na we got. You want your own specific OTC option derivative product that will cap your loses at a certain level.
 
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