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skew shape
- Thread starter clarodina
- Start date
Quote from Rationalize:
So let's say you're quoting the ask side at $0.30, being about 40 vol (above fair).
You get filled as someone buys back their short, crossing the spread and lifting your offer.
You're now short at 40 vol, ITM, close to expiry.
How are you practically going to unwind that, without giving away your captured edge?
Hold?
That's what I was referring to, boosting the vol in the deeps as the natural demand is likely to lift offers to close, rather than hitting bids to open.
Makes sense. Play it delta 1 into expiration, get assigned & deliver?Quote from atticus:
Hold?
That's what I was referring to, boosting the vol in the deeps as the natural demand is likely to lift offers to close, rather than hitting bids to open.
If so, hadn't thought of that. Checking IB's rates..
Could get/short the stock in 1 txn I guess.
Quote from Rationalize:
= short put for +$40 per contract, short 100 shares per contract & have the stock put to you the next morning, covering the short.
Doable. Why are ppl trading out there short options??
So short the synthetic call at $0.40 over spot. I was thinking about the mechanics of an index trade. There are many reasons to buy the deep puts near (last few days) expiration, but few reasons to sell. My only point was that there is a natural bid to cover teenies at the offer rather than the bid. The contention is that it would steepen the curve, or at least cause a kink, as the microstructure demands. IOW, a $0.10 spread on a $0.20(mid) option implies a wide vol-mkt.
There was an instance last year of a trader/firm who was long a ton of VIX and boosted the SPX (and VIX) vol by buying x0,000s of the deep puts in SPX on the VIX cash settlement/expiration. Admittedly, an extreme example, but it moved my mark a point in the wrong direction.