It's a hedged long vol position that arbs skew and the tenor (vol-switch). Here's the payoff out to 5/9, but I have since gone flat risk.
so you are using this strategy to hedge against your long position on rty? if rty goes up, you are up on your long position, but you will be down on your hedge strategy. how much are you down on it if rty keeps going up? and what about vice versa?
No, the skew lock is the primary "risk" but PNL never drops below x. I wanted to be long(er) so I bought index futures. I chose RTY due to bank outperformance. You're not going to understand the skew lock and I am not revealing an edge here for those that would (understand the vol-position). My dog has GERD so I gotta buy some organic pumpkin and I got a flight to catch. GL to all.
So help me understand. Flat risk meaning now you can't lose money on this? Andthat is a pnl curve that is pegged to the russel price? so which ever direction it goes, you'll make money?
Yeah, but atm (RUT) vols cannot drop below 18.5% out to May serial exp. If so that central trough will trade price below x. I have something similar in NDX and SPX, but RUT had more edge. I cover when the center trough touches x. My stressed/predicted price was 8.8 which was hit today. I bought the combo (position) at 5.0, yesterday. I went flat delta in futures so have no risk on the day. I am still in it. So imagine paying 5.0 for a call and covering at 8.8. The gigi is that I don't have any areas below x unless vols drop 250-300bps. So essentially a free long call that gained 76% on haircut.
No. Considering that I bought the SPY on Wednesday, it's just just about flat right now for me so I want to let it run a bit till EOD as planned to see if I can land the position in profit. I want to give it a chance to go up further now that it's come this far. It's also likely that the market might just trot back and forth and stay flat from now on and that's ok too. I will just get out flat or maybe with a small loss. No big deal. It's Friday, the sun is out. Might go for a nice walk after the market is closed...