Don't understand the italicized part. I noticed that there are some nuances that matter in the weekly/daily var. Since I can't do it easily in my current seat, I will be happy to share with you whatever I learned over PM.
if closing the position due to ATM options aren't at the money anymore then so be it.. i'm not a market maker who might be more obligated to hold a position into expiration.. if you got into good money with a scalp you could close it completely
why not pick ratio backspread to gamma scalp inside? anyone do that????? say you sell an itm call.. and buy two or three out of the money calls depending on how much of a credit or debit you want, and as well how you much of a strike spread you would like to trade inside.. the wider the strike spread the more otm calls you can buy with your sold itm call credits.. i'd love to use specific examples.. such that actual points about the nature of that ticker and the options there of can be brought up instead of like just generalized speculations about that particular strategy.. say the fxe euro trust .. trading at 129.64 say you wanna generally express a short position in the euro.. for whatever reason... elections in us .. whatever.. but you don't want the risk of it breaking out on the upside due to a bunch of potiential volatility in the dollar or something.. whatever your reasoning.. you want your unlimited profit side to be on the short side.. so right now theres .1924 deltas on the 130/131 backspread for november.. you short 19 shares of the trust...anyone do this kind of thing?
No, because it's not free money - in a sustained move (a la last August) you get hurt holding daily over weekly variance.
If you move away from the ATM point the gamma will suffer. Check Hoadley and compare the gamma curve for the spread you suggest to the gamma of a ATM long straddle for example. The P&L equation (when you hdge with implied vol) has the form of: P&L= 0.5*(real variance - implied var)*gamma*Spot^2*dt so it's proportional to gamma over each time step dt. (Obviously you need positive gamma too)
P&L= 0.5*(real variance - implied var)*gamma*Spot^2*dt i kinda get this.. but i know not all of it ... your delta.. which in this case. is .5 times the difference of the realized variance and the implied variance then multiplied by the gamma of the combination you have on.. times the spot something times the dt? the last two i don't get.. can you explain this more i'm dumb sorry.. i know your solving for P/L here which basically means your finding the difference between what variance was realized against what implied you purchased but then you have to find how well you scalped against that implied vol that you purchased with the realized.. your scalping with realized against the implied you purchased.. i just don't understand the last part of the equation..
P/L is the expected profit over a time period dt, when you delta hedge with the implied volatility (i.e. you calculate your delta value by using the implied vol value). Spot^2 refers to the square of the spot price The difference in the parentheses is between the square of realised volatility and the square of implied volatility 0.5 is just a number For each step dt, the spot price changes and so does the gamma and you have to sum up all the P/L's for each time step dt to calculate your total profit during the life time of the trade (which you can imagine is divided into small time steps dt) So the P/L is proportional to the gamma and to the spread between (the squares) of realised and implied volatilities and it is positive (the p/L) when the difference and the gamma are positive OR when the difference and the gamma are negative (short volatility position) That's only me explaining my thought. I don't feel comfortable giving any kind of advice here since I am still learning. I have a better undesrtanding of maths than the average person but this is as far as it goes. For example you probably have a much better understanding than me of more practical issues in trading etc