Suggestion to the CBOE
- Thread starter nitro
- Start date
there must be something I am missing here ... those options would have no delta-effect, but they wouldn't be continous ... so there would be theta effect ... let's sell the hell out of those suckers is my first idea ... I could be missing something ...
EDIT: you got my mind tight in a knot here, the way you see it there wouldn't be a theta effect too probably ... who would make a market in these things and how would they hedge themselves ...
STILL THINKING: if you would have those before results, they would be free money as you know vol would sink ... sounds great theoretical, wouldn't work in practice is what I am thinking, unless done on an index ...
EDIT: you got my mind tight in a knot here, the way you see it there wouldn't be a theta effect too probably ... who would make a market in these things and how would they hedge themselves ...
STILL THINKING: if you would have those before results, they would be free money as you know vol would sink ... sounds great theoretical, wouldn't work in practice is what I am thinking, unless done on an index ...
Because you are not selling one option, you are selling the ATM straddle as if there existed both a put and a call at this theoretical ATM forward price. All it does is simulate a real straddle with the underlying trading at the strike, but does not have the problem of a normal straddle of delta exposure as the underlying moves from the strike. In this case, the "strike" is always the ATM forward.
my point remains though: unless done on an index you won't see critical volume in this because most retail traders won't touch it and even a lot of pro's won't trade it ... on an index might be good idea, but market makers might have a hard time trying to hedge this ... so it becomes a question of the chicken and the egg ... which comes first ...
EDIT: and like you said yourself this would probably be attacking an allready succesfull product: the vix ... not very likely the CBOE is going to do that ...
EDIT: and like you said yourself this would probably be attacking an allready succesfull product: the vix ... not very likely the CBOE is going to do that ...
Yeah, it is ridiculous to get MMs to quote you a spread electronically. The COB (complex order book) on the CBOE tried to make this spread trading popular, but it never seem to take off. I contend the reason spreads are not popular is precisely for this reason though. Spreads require delta maintenance unless they are things like iron condors or butterflies etc, each of which costs an arm in the leg to get in, and an arm in the leg to get out. Also, there are so many of them, and if given too many choices people get confused, or trading is thin with no open interest. This continuous ATM forward straddle would require no maintenance since it has no delta exposure, and it does not explode the number of instruments quoted since it is just one per month so it is quite easy to grasp!
Again, you are making my argument for me, not against it. The real problem is convincing people that this would make their option trading (in its pure form) easier, not harder.
it took me a while to get the point (like I said I am a bit slow today 
) and I see it's merits, the hardest thing will probably be to move some bureaucrats to move their asses and get out of conventional thinking. And some pro's might not even like it as they might prefer to leave this OTC where they can better set their prices without competition. In an utopian world seems like a good idea ... but I have my doubts this will ever see the light of day ...
) and I see it's merits, the hardest thing will probably be to move some bureaucrats to move their asses and get out of conventional thinking. And some pro's might not even like it as they might prefer to leave this OTC where they can better set their prices without competition. In an utopian world seems like a good idea ... but I have my doubts this will ever see the light of day ...