Riskarb's combo to fly conversion journal

Quote from skanan:

Calculon,

You talks like riskarb but not the same person. Can you please exaplain

1. 2000 basis

2. tenor skew

Thanks,
-Nick
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:p

Basis is the absolute difference rather than %. 2000basis = 20.00 vol points. Tenor skew refers to relative vols across expirations.
 
Quote from Cache Landing:

A word of caution on INFY. This isn't a normal earning report. They are discussing a stock bonus to be announced at the earnings conference. These bonuses have been very generous in the past. This one could do wierd things with the price action and IV.
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Sure enough... 2:1 stock dividend subject to shareholder approval. Show me a shareholder that's going to disapprove that. Anxious to see the fireworks on Monday.:)
 
Hi,

I have a question for Calculon or anyone:

If you don't have the budget to sell the straddle then convert to a butter, would this be an OK alternative?

Example trade idea is RMBS, earnings are out 5/19 AMC and the vols are through the roof. Nov ATM 45C volatility is 80.

If you long the November butter, say sell the Nov 45C, buy the 60/30 wings for a total debit of 3.2, assumming the vols drop after earnings to 60, would give this a decent increase in value.

Even if the stock moves hard against you, the damage isn't awful.

What do you think?

frisbeeca
 
Quote from mantenar:

IV trader, Thanks for your response on FFIV. INFY is reporting earnings tomorrow . IV for Apr 75 call/put is at 50. I am expecting IV to drop to 35sh. History indicates that stock drops about 5-10 % after the earnings. I want to analyze RC on this.

Apr 75 call - IV 50% , Vega 0.05 , price 2.65
May 75 call - IV 35% , Vega 0.10 , price 3.50

Total position delta is -3.17 and total credit 0.80

I simulated this trade in TOS. When the IV of APR 75 call drops to 35%, then it shows that the position loses value. Is this correct because May 75 call with higher vega should lose more than APR 75 call . If IV of May does not drop, then this position lose value. Just want to know your thoughts. thxs.

Do you use any ratio for RC to make it delta neutral. When do you calls vs puts.
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How did you do on INFY ? I closed with 60c profit , not a big deal , but nice to start a new week with profit ,MAY vols is under 30 as expected
 
IV trader, I did not put the trade on INFY. I am glad that you did . RMBS is announcing results on 4/19.

Apr 45C IV=175%, Vega=02 Price 3.8
May 45C IV=120% Vega=05 Price 6.5

My expectation is that IV would drop to 100% . Since it is high volatile stock, it would move atleast 10%. What do you think about this trade.
 
Quote from mantenar:

IV trader, I did not put the trade on INFY. I am glad that you did . RMBS is announcing results on 4/19.

Apr 45C IV=175%, Vega=02 Price 3.8
May 45C IV=120% Vega=05 Price 6.5

My expectation is that IV would drop to 100% . Since it is high volatile stock, it would move atleast 10%. What do you think about this trade.
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I pass , RMBS iv is very often NOT report related ; hence its almost impossible to build a model. The credit (2.70) does looks attractive though.
 
I am also looking at this option on RBMS

Sell Apr 45 straddle for 7.40 credit
But Apr 60/30 strangle for 0.95 debit.

If the volatility collapses to 100%, there will be profit if the stock does not outside of 39 and 51.

It is similar the riskarb trade. I want to buy the strangle to reduce the margin and overall risk., I want to buy the strangle first and then sell straddle. Let me know your thoughts. Thxs.
 
I agree:

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1042166>
Quote from IV_Trader:

I pass , RMBS iv is very often NOT report related ; hence its almost impossible to build a model. ....
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