riskarb's trading journal

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Quote from Aardvark:

one more question:p when you say negative edge a lot...what do YOU mean by that? coach isn't the fed the 28th..
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The "market" is wide.
 
Quote from Crucis:

Riskarb, I've only been trading a year. Could you explain what a "double no touch" is? :confused:
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If either barrier is touched the debit is lost.
 
Quote from riskarb:

DAX/SPX cash double barrier vol-replication

DAX double no touch: 5300 // 5900
Premium: $755,000
Payout: $1,500,000 [includes prem paid]
Expires: June 27, 2006
Negative edge: a lot
Strike/barrier volatility: blended

SPX "short" double no touch: 1230 // 1305
Premium: $685,000
Payout: $1,000,000 [includes prem paid]
Expires: June 27, 2006
Negative edge: a lot
Strike/barrier volatility: blended

Volbox: +700


Long correlation, long volbox, short small gammas based upon notional-asymmetry. Trade would be long gamma if trading equal dollar. Largest risk is correlation. I don't expect to be trading against either position. The SPX is equivalent to a double knock-in.
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OUT of the above at a $224,500 loss. DAX is underperforming, as would be expected on the downside. Will tally PnL this weekend. Lost the DAX double as well.
 
SPX bull no touch // weak synthetic straddle

SPX bull no touch: 1225.00
Premium: $525,000
Payout: $1,000,000 [includes prem paid]
Expires: June 20, 2006
Negative edge: a lot
Strike/barrier volatility: 21%
Initial Hedge: Short 270 Sep ES from 125900 average
Symmetrical hedge: Short 500 ES
Vol edge/atm: +300bp

100 points off lows in Dow, although the internals looks horrific as one would expect. I have an added sell stops on futures for 200 more in the 1245-range on Sep futures.
 
Quote from riskarb:

DAX/SPX cash double barrier vol-replication
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If one barrier is touched, it takes the entire position with it? Meaning the DAX hit causes you to lose the SPX as well? Basically 4 sides to watch instead of 2?
 
Quote from riskarb:

SPX bull no touch // weak synthetic straddle

SPX bull no touch: 1225.00
Premium: $525,000
Payout: $1,000,000 [includes prem paid]
Expires: June 20, 2006
Negative edge: a lot
Strike/barrier volatility: 21%
Initial Hedge: Short 270 Sep ES from 125900 average
Symmetrical hedge: Short 500 ES
Vol edge/atm: +300bp

100 points off lows in Dow, although the internals looks horrific as one would expect. I have an added sell stops on futures for 200 more in the 1245-range on Sep futures.
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hi riskarb - it's great to see examples of how you hedge these... - is your hedging discretionary or what is your general methodology (if you could summarize)?

i was looking at the spike in the VIX futures and options today - finally for the first time since they started trading, the vix puts got to a level low enough for me to consider buying, that's August puts, was great volume across the board -
all the best.
 
Quote from fader:

hi riskarb - it's great to see examples of how you hedge these... - is your hedging discretionary or what is your general methodology (if you could summarize)?

i was looking at the spike in the VIX futures and options today - finally for the first time since they started trading, the vix puts got to a level low enough for me to consider buying, that's August puts, was great volume across the board -
all the best.
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The hedging is often discretionary, but more often I solve for a strong hedge that allows for a b/e at the barrier strike. Often I will hedge weakly when taking a directional bet [long in the above SPX no touch] or when predicting the shape of the distro to expiration. Most of the neutral-bias trades involve a slight-reduction in spot-hedge based upon strike-probabilities and adjusted for vol-surface. I will discount the hedge by strike vol edge and probability -- the allowance for prob. can simply be, "strong hedge * .xx delta" but I use something a bit more robust based upon 2-6th moment partials; dgamma/dx, dvega/dx, etc...

There is a flat vol-surface in exotics with <10d expirations -- same-delta calls and puts are modeled as equal probability. Therefore double barriers are preferable to a no touch synthetic straddle.

I am taking a bull-position in the latest SPX barrier -- I will never trade a single no touch weaker than 1/2 of the strong hedge req. IOW, that's as bullish as I can get while carrying a hedge.
 
Quote from frisbeeca:

If one barrier is touched, it takes the entire position with it? Meaning the DAX hit causes you to lose the SPX as well? Basically 4 sides to watch instead of 2?
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No, they're independent. The problem was the beta. DAX was simply too weak to continue holding the position. My vomit-trigger was DAX 5400.

The current SPX position is mildy positive PnL on the marks, including hedge.
 
Quote from riskarb:

I use something a bit more robust based upon 2-6th moment partials; dgamma/dx, dvega/dx, etc...
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sounds good, i love your explanations, they're way better than learning from a textbook :) best of luck with your trades!
 
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