riskarb's trading journal

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Quote from kalashnicac:

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...
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Because my recent luck with futures-hedging has been poor. Have had better luck with my reversal timing. Plus, it's always a better trade w.r.t. replication and convergence [gains or reduced losses from time].
 
Quote from Cache Landing:

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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Whatever skill I have in analysis is in reducing model-best-method into an arithmetic/algebraic approximation. I like to choose strikes 1-2 sigmas otm based upon the exotic expiration. I use a rolling straddle valuation [otc straddle expiring at exotic date] to determine my vanilla r/r strikes. IOW, I choose r/r strikes just outside the atm straddle range.
 
I forget what the "greek" is for this 2nd order derivative: gamma of gamma?

Any ideas? I read it somewhere...

IIRC gamma of vega is sometimes called volga!

Quote from riskarb:

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.
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Ahh, cunning. Presumably that is an OTC vanilla straddle with matching tenor. [EDIT: What else can it be? LOL - but what are the prices like compared to listed equivalents? ]

Vote we rename thread to: "Suck all knowledge from Riskarb till he dies"

Quote from riskarb:

Whatever skill I have in analysis is in reducing model-best-method into an arithmetic/algebraic approximation. I like to choose strikes 1-2 sigmas otm based upon the exotic expiration. I use a rolling straddle valuation [otc straddle expiring at exotic date] to determine my vanilla r/r strikes. IOW, I choose r/r strikes just outside the atm straddle range.
More...
 
Quote from momoneythansens:

I forget what the "greek" is for this 2nd order derivative: gamma of gamma?

Any ideas? I read it somewhere...

IIRC gamma of vega is sometimes called volga!
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Speed = dgamma/dS
Zomma = dgamma/dVol
 
Quote from riskarb:

Because my recent luck with futures-hedging has been poor. Have had better luck with my reversal timing. Plus, it's always a better trade w.r.t. replication and convergence [gains or reduced losses from time].
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OK I see. One of the major differences though is that with risk-reversals you're paying the spread+commissions whereas with futures you only pay commissions. But I imagine it doesn't really matter that much if your intention is to keep the hedge on until expiration (of the binary) as opposed to getting in and out of it all the time.

And would it be correct to say that with risk-reversals you are less concerned about whipsaw movements than you were with futures, because the gamma of the r-r will reduce as time passes and the r-r heads back to neutrality?
 
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