riskarb's trading journal

riskarb · May 20, 2006

Quote from shortie:

how best to trade high volatility betting on its revertion to lower levels? it is tempting to take advantage of high volatility that we are seeing today, but high volatility implies more risk.

is there anything better than simply writing straddles/strangles? I would like to limit my risk.

my broker won't let me trade Vix directly.

I think the vast majority of short vol blowups come from ppl attempting to game what they believe to be volty-tops. I'd rather sell the vol as it's in the process of reverting. I am quick to cover short index vol as it's rising. No different that a stop loss in stock or futures.

Vol seems to trend very well.

Long butterflies, short calendar spreads, long backspreads. Pseudo short straddles in which you buy 3-4sigma wings simply to fix the haircut.

mahras2 · May 20, 2006

I ran a private fund with a buddy from Wilmette, IL at 18. He was an IT guy who built a link to DOT/superDOT for index arbs.

And I was thinking I started early. 18 in 4 months haha.

What was your westinghouse entry on? Currently completing my Intel STS entry to be submitted this fall [finance (behavioral sciences): news and affect on FX vols on uncorrelated baskets]

riskarb · May 20, 2006

Quote from mahras2:

And I was thinking I started early. 18 in 4 months haha.

What was your westinghouse entry on? Currently completing my Intel STS entry to be submitted this fall [finance (behavioral sciences): news and affect on FX vols on uncorrelated baskets]

Fast-fission, fusion.

TraderRobb · May 20, 2006

Riskarb:
Thanks for the reply. Not surprised of the math major.
Question: It seems this option business or arbitration is primarily to protect an investment (position), similar to insurance. What return on capital annually do you anticipate from the options as a use of capital in itself? Or is this all too interrelated to the position and is considered an expense of doing business?

rallymode · May 20, 2006

Quote from riskarb:

It accumulates gammas very quickly if correct on direction. To be symmetrical requires selling cheap gamma/dgamma against the chosen direction, can't be avoided.

To make sure i understand you right, you are saying that the + and - strikes must be symetrical to the price of the underlying vs. being closer to market with the -gamma side?

riskarb · May 20, 2006

Quote from TraderRobb:

Question: It seems this option business or arbitration is primarily to protect an investment (position), similar to insurance. What return on capital annually do you anticipate from the options as a use of capital in itself? Or is this all too interrelated to the position and is considered an expense of doing business?

From arbitrage; which is a function of leveraged borrowing or lending, no more than 20% on AUM. Returns from arbitrage are linear w.r.t. FI rates.

Options as an asset class is my primary trade. Spot/futures are used to smooth the equity line. That being stated, it's very difficult to answer that question.

riskarb · May 20, 2006

Quote from rallymode:

To make sure i understand you right, you are saying that the + and - strikes must be symetrical to the price of the underlying as compared to being closer to market with the -gamma side?

Symmetry isn't an imperative, but trading equal [sans-sign] deltas tends to work best, as long as there is gamma curvature[dgamma] and initial deltas <30 per side.

riskarb · May 20, 2006

Quote from riskarb:

Fast-fission, fusion.

It was a paper on a fission trigger model using a centrifugal, declining, sub-critical mass into the fixed, sub-critical pair. It was a silly design thought to replace the conventional "soccer ball" fission trigger. My buddy and I spent very little work on it.

rallymode · May 20, 2006

Quote from riskarb:

Symmetry isn't an imperative, but trading equal [sans-sign] deltas tends to work best, as long as there is gamma curvature[dgamma] and initial deltas <30 per side.

I understand it now. Thanx for the clarification. It is a great trade to capture directional moves intraday by taking advantage of the quickly accumulating deltas as you said. For those of us who have longer time frames. How would you modify this strategy to make it fit to a longer time span(7-10 days)? I understand you will have theta working against you but how would you best protect against the risks of the short gamma if you want to hold overnight?

riskarb · May 20, 2006

Quote from rallymode:

I understand it now. Thanx for the clarification. It is a great trade to capture directional moves intraday by taking advantage of the quickly accumulating deltas as you said. For those of us who have longer time frames. How would you modify this strategy to make it fit to a longer time span(7-10 days)? I understand you will have theta working against you but how would you best protect against the risks of the short gamma if you want to hold overnight?

I would assume an increase in magnitude coincident with an decrease in frequency -- I would go further otm and more contract size -- decrease neutral gammas and increase dgammas.