riskarb's trading journal
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Quote from momoneythansens:
FWIW, A double no touch is not synonymous with two separate no touches.
A path-independent vanilla European credit spread is quite a different animal to a path-dependent discontinuous payoff American binaryLOL
An American binary is more of a bet on time. An SPX credit spread is more of a bet on price IMO.
Pursuing a wide range for the double no touch in an effort to increase win/loss ratio and replicate a FOTM credit spread strategy is misleading IMO.
Track record of Riskarb's last exotics journal demonstrates an enviable performance. If it ain't broke don't fix it!
Correct, paired no touches will allow a profitable offset on one of the pair. Doubles are proximity/contamination trades.
Quote from momoneythansens:
FWIW, A double no touch is not synonymous with two separate no touches.
A path-independent vanilla European credit spread is quite a different animal to a path-dependent discontinuous payoff American binary
An American binary is more of a bet on time. An SPX credit spread is more of a bet on price IMO.
Pursuing a wide range for the double no touch in an effort to increase win/loss ratio and replicate a FOTM credit spread strategy is misleading IMO.
oh god...now who do we have to translate MOMONEY:eek:
Sorry 
European OTM credit spreads are path-independent because it doesn't matter what path the price takes from initiation till expiration - it is only the final price that matters in theory.
As we all know, depending on position size and risk/reward, people (partially) hedge, adjust, roll these European OTM credit spreads depending on price action thus negating the path-independence attribute to some degree.
An American binary/digital (all or nothing) is path dependent because it does matter what path is taken between initiation and maturity because a touch could happen in the interim.
Discontinuous payoff refers to the risk profile of the position - it is all or nothing and hence the profile is discontinuous. Contrast this with the "ramp" payoff for a vanilla call/put etc.
As it turns out, a narrow OTM credit spread has somewhat of a discontinuous looking payoff risk profile. Indeed, the narrower it becomes the closer it resembles a European binary/digital and hence the closest vanilla replication of a European binary is a credit/debit spread.
Don't make me type "discontinuous" again
MoMoney.
European OTM credit spreads are path-independent because it doesn't matter what path the price takes from initiation till expiration - it is only the final price that matters in theory.
As we all know, depending on position size and risk/reward, people (partially) hedge, adjust, roll these European OTM credit spreads depending on price action thus negating the path-independence attribute to some degree.
An American binary/digital (all or nothing) is path dependent because it does matter what path is taken between initiation and maturity because a touch could happen in the interim.
Discontinuous payoff refers to the risk profile of the position - it is all or nothing and hence the profile is discontinuous. Contrast this with the "ramp" payoff for a vanilla call/put etc.
As it turns out, a narrow OTM credit spread has somewhat of a discontinuous looking payoff risk profile. Indeed, the narrower it becomes the closer it resembles a European binary/digital and hence the closest vanilla replication of a European binary is a credit/debit spread.
Don't make me type "discontinuous" again
MoMoney.
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