riskarb's trading journal

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Quote from rallymode:

risk,

do you use TWS or link to the API via 3rd party? It seems the last build takes ES combo orders.
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We use the API to link TWS and lmt expo, but I don't use it often[to trade], more for analysis. The TWS combo orders appear on the menu, but don't seem to function. I believe it's a globex-issue.

Stereo: RUT = Russell 2k index
 
Vanilla SPX bear risk reversal:

Scaling into 2x barrier vanilla hedge -- Short the June SPX 1250p/1290c bear risk reversal at $3.00 to the buy, 10x. SPX = 1268+ ... market on the reversal was 1.60 x 3.20 when filled minutes ago.

Long 10 June 1250p // Short 10 June 1290c: $3.00 debit to open position. Will likely hold into expiration of the SPX double barrier.
 
To show the dgamma/gamma in a 2-sigma reversal... SPX drops 200 and the SPX reversal is 340 x 540 currently. They work fantastic when you're right. They need to be handled with care.
 
risk (or anyone who speaks english),

Could you explain double precision gamma a bit so that I can get a little more familiar with how to use it as in your references dgamma/gamma?
 
Quote from Cache Landing:

risk (or anyone who speaks english),

Could you explain double precision gamma a bit so that I can get a little more familiar with how to use it as in your references dgamma/gamma?
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It's super, double top secret. It's simply the speed of the gamma, much as gamma is the speed of delta. The slopes of the curvature are convex otm, concave itm. In trading, the risk:reward favors buying/selling otm options. An increase[decrease] in volty and/or time will decrease[increase] dgamma.
 
Quote from Cache Landing:

risk (or anyone who speaks english),

Could you explain double precision gamma a bit so that I can get a little more familiar with how to use it as in your references dgamma/gamma?
More...

Let me give it a go. I think the idea is that riskarb needs to hedge a binary whose gamma will increase faster and faster as we approach the barrier (at 1250). Therefore, an appopriate hedge would be one whose gamma will also increase at a very high pace (dgamma) as we approach the barrier. The 1250 put achieves this; hence the 1250/1290 risk reversal is the most cost efficient way to do this.

Hope I've clarified it and that I'm not off-track...:confused:

PS : why riskarb used a risk-reversal as opposed to replication via futures to do this as he usually does is what I'm wondering...
 
Quote from kalashnicac:

Let me give it a go. I think the idea is that riskarb needs to hedge a binary whose gamma will increase faster and faster as we approach the barrier (at 1250). Therefore, an appopriate hedge would be one whose gamma will also increase at a very high pace (dgamma) as we approach the barrier. The 1250 put achieves this; hence the 1250/1290 risk reversal is the most cost efficient way to do this.

Hope I've clarified it and that I'm not off-track...:confused:
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Thanks K'cac. Yes, fighting gamma with gamma, as in replication. Simply choosing otm strangles is not an option when trading hybrid-replication. The gamma in a risk-reversal is purchased very cheaply into the direction of the exotic-risk.
 
So the next question is whether you have software spitting both numbers at you. IOW, are you looking for a specific dgamma/gamma, or are you just looking for the strike that would be most effective in accomplishing the purpose of hedging your gamma exposure?
 
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