Wasn't condemning your earlier comments at all. I was weak on gamma anyway, as the PnL shows. I would've whittled-away at the futs on the upside, maintaining a risk to strike calc showing a loss of no more than $25k in risk at barrier. It's tough to say due to the dynamic hedge, but in all likelihood something >1320 SPX cash as upside b/e.
riskarb's trading journal
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Wasn't condemning your earlier comments at all. I was weak on gamma anyway, as the PnL shows. I would've whittled-away at the futs on the upside, maintaining a risk to strike calc showing a loss of no more than $25k in risk at barrier. It's tough to say due to the dynamic hedge, but in all likelihood something >1320 SPX cash as upside b/e.
Quote from optioncoach:
The good thing about the Es hedge and the barrier option is no need to ride it out. Once the barrier is hit, you take off the futures position and move on
My biggest %gain [not in journals] was an upside 2x barrier breach hedged with futures in DAX while I was sleeping. Upside barrier was hit but I was long futures until I logged in that morning. Made an additional 60 handles on the FDAX hedge due to unconsciousness. One of the modality-advantages of trading a synth straddle with barriers.
Ha! Your point on replicating gamma/martingale with futures being potentially messy in markets like today is well made and has given me pause for thought.
I've been toying with the idea of automating such gamma replication and although I'll probably follow through on the exercise, its unlikely it will see the light of day in practice.
In addition, your earlier point about any idiot being able to trade barriers is also well made. The art of the hedging is indeed what differentiates. I believe it is Hull that says that barriers are one of the most difficult exotics to hedge.
Food for thought.
I've been toying with the idea of automating such gamma replication and although I'll probably follow through on the exercise, its unlikely it will see the light of day in practice.
In addition, your earlier point about any idiot being able to trade barriers is also well made. The art of the hedging is indeed what differentiates. I believe it is Hull that says that barriers are one of the most difficult exotics to hedge.
Food for thought.
Risk:
Let's get funky then. You do the 1277 Barrier option and then straddle ES ATM and sell a 1315 barrier option?
If market is rangebound you make money on both Barriers.
If market moves outside of range, gain on one Barrier offsets mostly loss on other barrier and you could make money on ES straddle? Add future at time to hedge/scalp if you can work it...
Too simple?
Let's get funky then. You do the 1277 Barrier option and then straddle ES ATM and sell a 1315 barrier option?
If market is rangebound you make money on both Barriers.
If market moves outside of range, gain on one Barrier offsets mostly loss on other barrier and you could make money on ES straddle? Add future at time to hedge/scalp if you can work it...
Too simple?
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