Riskarb's combo to fly conversion journal

The IV chart and the options chain I posted came from my optionsXpress account. To post screen shots I use a freeware: IrfanView.
Quote from ozzy:

cnms ....... just curious what software are you using there.

Thnx
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I may be certifiably-insane, but I sold a bunch of the Jan07 45 straddles in RMBS this week at vols near 75% and >$22. Also sold the Jan07 35 1x2 call/put pitchfork at 74 vols and >$27.

Here's hoping the stat vol comes in as much as the IV. Somehow I doubt it.
 
Well I am planning on joining in that certifiably insane category: Tomorrow I will try to open a May 06 1x2 pitch fork (35 calls and puts). Making a small bet to practice. Why are you doing the back months?
 
Quote from mahras2:

Well I am planning on joining in that certifiably insane category: Tomorrow I will try to open a May 06 1x2 pitch fork (35 calls and puts). Making a small bet to practice. Why are you doing the back months?
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For the vega. Front month is all gamma, and I don't want to be primarily short gamma/vega.
 
Quote from mahras2:

Hmm gotcha, I hadn't viewed it that way actually.
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Don't do the 35 May pitchfork -- 35 if too far otm to trade the front month, too many deltas. Go with the 40 for May or one of the back month 35s.
 
Is the pitchfork because your bias is to the downside for RMBS? Or just so your maximum profit is if the stock price is between 35 and 45?
Is your trade similar to this:
Short 10 Jan35 Calls, Short 10 Jan45 Calls,
Short 20 Jan35 Puts, Short 10 Jan45 Puts
What is the timeframe when you would take this trade off Riskarb?
Also, thank you for sharing your ideas. It means alot.

frisbeeca
 
Quote from riskarb:

Don't do the 35 May pitchfork -- 35 if too far otm to trade the front month, too many deltas. Go with the 40 for May or one of the back month 35s.
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Thanks for the pointer. I will eye the Aug or Nov ones then. The 40s on May look nice though (increases the BE point on the upside+more credit)
 
Quote from frisbeeca:

Is the pitchfork because your bias is to the downside for RMBS? Or just so your maximum profit is if the stock price is between 35 and 45?
Is your trade similar to this:
Short 10 Jan35 Calls, Short 10 Jan45 Calls,
Short 20 Jan35 Puts, Short 10 Jan45 Puts
What is the timeframe when you would take this trade off Riskarb?
Also, thank you for sharing your ideas. It means alot.

frisbeeca
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Hey Frisbeeca,

I coined the term as it resembles a two-pronged pitchfork[tm]. You can go long or short, but it's primarily a skew-trade in index markets. The standard trade in index is to sell two otm puts/one itm call, same strike. There are a few other relative value parms that need to be met, but that's for another thread.

I would avoid trading them as put and call combos above and below the market unless you're buying one and selling the other[pitch].

I can't really get into my specific metrics, but they perform well under 1-1.5 sigmas; similar to a classic straddle with smaller neutral gammas and larger dgamma risk. They're fairly complicated to trade even with the simple structure.

A quick and dirty parm for pitchfork[tm]/straddle equivalence:

Pitchfork[tm] credit > ((atm straddle)/2)*3 ... or more simply (atm straddle)*1.5 for a 3-way pitchfork[tm]; ( ... )*2 for a 1x3 pitchfork[tm], but I don't recommend those unless the smile is nearly linear out to 4-5 sigmas.

These aren't good for shotgunning in all available tickers, but obviously the edge in vol from +skew equates to a smaller neutral gamma risk[gamma edge].
 
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