Sorry for the newbie question but.... is there any way to have/create a call on a bond future? how would you hedge against a bond future? Do you just buy the underlining?
well first.. which Bonds...... there are usually options on futures you can use to hedge.. and you can use other nearer or farther term futures to hedge as well.. WHICH BONDS!
sorry... BTP and OAT i.e. Italy and French you are right, German ( GBL ) do have options Talking about BTP and OAT i was only able to find the future, I am wondering how i can hedge a trade that involve them.
trades are on the paper account for the moment so, no panic I am considering the followings: a) been (partially)long on BTP b) trade the spread between GBL and BTP c) been (partially)long on OAT but i am new to bond futures, so I would like to (try to) avoid the "usual mistakes". so far i am considering Euribor and some ETFs (EU bonds) as possible candidates for hedging
Umm.. I'd look at the implied vols of the options and look at the historic/realized volatility.. Compare them.. i don't know what your time frame is on the trade.. But generally speeaking i try to situation myself into a position that i can be wrong about timing and wrong about direction and it not cost me that much... Call ratio backspreads... If you wanna be long on something.. A little otm centered butterfly makes the trade cheaper and more profitable on a drift up... What your trading with options is the implied against the future realized volatility... my thoughts are that once Us wakes up to our problems the bonds over in euro are going to go up... Maybe a flight from the dollar etc.. But who knows when... All kinds of poeple have got caught up in trying to short us tresuries.. Disperse your exposure over the longest period of time considering the risk/reward.... IE your better off betting smaller amounts over time on higher leveraged trades then tying up a bunch of money in one trade...
Well... BTP are volatile like hell positively correlated with spanish bonds and negatively correlated with germans. Interest rate does not look like influence them at a first look. Do you have any link where I can learn a bit more?
so your talking about pairs trading? i'm reading this book right now... pairs trading - Quantitative Methods and Analysis.. i'm wanting to trade options on futures.. i've traded options for about a yeear..
Good god, I just couldn't stand this any more... No, there are no options on BTPS and OAT futures. People who want to hedge these positions buy/sell cash BTPS and OAT. The further you go in the credit spectrum, the less the trade will have to do with interest rates. That means that Euribors (apart from being a sh1t hedge for a bond position to begin with) are going to be a worse hedge for BTPS than for OAT.
tnx martinghoul, so you are saying that there is not a decent hedge for BTP and OAT. Are they a savage land?