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trefoil

Registered: Mar 2007
Posts: 3385

08-06-12 12:17 AM

Quote from cdcaveman:

Sometimes in life the more expensive the premium is the better

...re being married and taking out an option, mayhaps: better cheap than free?

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cdcaveman

Registered: Aug 2011
Posts: 3517

08-06-12 12:23 AM

That makes no sense....

getting married that is.. Haha

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sellindexvol66

Registered: Apr 2008
Posts: 590

08-06-12 12:28 AM

Quote from sle:

What he means is that he likes being short vega on longer dated options. Implied vol is usually higher on longer dates, so you are selling more expensive vol this way. Obviously, the draw back is that if you are protecting yourself by buying shorted dated options, you going to decay.

Yes , that sums it up well..although in my case i use a futures curve in the same way you describe.

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cdcaveman

Registered: Aug 2011
Posts: 3517

08-06-12 12:30 AM

OK how do you hedge yourself from huge reverse in the futures curve term structure?

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sle

Registered: Apr 2003
Posts: 1609

08-06-12 02:33 AM

Quote from cdcaveman:

OK how do you hedge yourself from huge reverse in the futures curve term structure?

If anything, he'd make money if the curve inverts (if I am reading him correctly, he's short the far end and long the front). What would hurt him is a massive bullish steepening of the term structure.

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cdcaveman

Registered: Aug 2011
Posts: 3517

08-06-12 03:54 AM

Quote from sle:

If anything, he'd make money if the curve inverts (if I am reading him correctly, he's short the far end and long the front). What would hurt him is a massive bullish steepening of the term structure.

that makes sense.. and in what case would that typically happen .. and what would one do to hedge against that?

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