The other big issue to remember here is that if you are trading butterflies/condors in skewed markets, you must account for the skew in both...
You are basically just buying a straddle (at a slight discount) and capping your upside potential. A straddle will lose 2 times out of 3...
Think of it this way. Define the crash from a perspective of volatility instead of price level. What do you think VIX would do in a crash? 70?...
What makes you think buying the straddle and selling a far OTM strangle is a high probability trade? Just curious.
If you are calculating the "fair value" off of flat-vol, the problem is that you are not taking the skew into account. Fair value (skew) = Fair...
In my opinion it's not a bad method of strike selection for an ATM fly. I'll often do the same in my initial analysis of a potential position....
Yes, using Black-Scholes (flat-vol), it will come out to around ~3500% or so on average. You have to account for the skew as well which should...
The back-of-the-envelope way to do this is to make a couple of simple assumptions. Define the "crash" -- say, 50%. Define the tenor -- say, over...
Good stuff. So the way I do it right now is "on the clock." My pricing spreadsheet uses minutes to expiration. I'll usually reprice hourly or...
Sure that's fine. My point was that the VIX quoting convention is on a calendar year. To rescale to 252, you have to first "unwrap" the implied...
Also, this naturally begs the follow up question(s) to "How to calculate daily implied volatility?" of.... Ok, we can calculate daily IV....but...
In most cases, it really doesn't make that much of a difference. But it is confusing. There was a point in time where I was very frustrated...
My 2 cents..... The basic Black-Scholes vol parameter input uses a 365-day year. So for pricing and hedging purposes, your implied vol parameter...
No. It has to do with things like stochastic vol, discrete hedging, jumps, and demand for OTM puts etc. Lots of literature out there on it. For...
I'd be a bit careful here. After all, think about the definition of what you're trading/comparing. If you buy the 12 month LEAP, you are...
Wrong. He did answer the primary question. OP asked if settlement was at the open on Friday, to which rmorse confirmed. The remainder of this...
It's nonsense to claim that "stat arb" means "pairs trading." Pick a market. You estimate vol to be 20% sampled close-close. You estimate vol...
No. Just pointing out that using longer dated options is not somehow safer because your theta burn rate is lower. Theta is a derivative...
Stepandfetchit- Time value = cost of gamma. Gamma is a squared term scaling linearly in time. That is, the gamma/theta ratio will be constant...
If the position is significantly underwater, I didn't hedge correctly in the first place -- i.e. I was carrying too much short vega risk at the...
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