ABN AMRO begins trading the DAX spot + exotics at 11:00 or midnight on Sunday. I'll more than likely trade the DAX at the open. I am limited to 10k euros per ticker, but I limit my trading on "marketindex" to DAX and Bund. I am still modeling the dispersion trade, despite IV's plea to go short the D. =) As stated, I'll limit the comments to dispersion outliers and their effect on index cash direction and volty, if any. I'll be attempting to offset outliers at 1 sigmas [weekly] and reallocate with downside, atm gammas. I haven't sufficiently modeled it due to the difficulty of dealing with all the data. I had initally modeled 1.5 and 2 sigmas, but it's very difficult to hit those hedge points in this vol-environment.
Riskarb, momoneythansens and IV trader. Gentlemen, A cynic may suggest this forum is all about posturing. I would never suggest such a thing. To disprove the doubters, give them clarification on the following. riskarb, âThere are some path-dependent pricing assumptions which I intend to abrogate through the discrete turnover of diametric-outliers on the long gamma component basket. I intend to show that it is possible to add significant alpha to a pure replication.â âno vol-shadingâ. momoneythansens, âre-straddle components that have had outliers in opposite directionsâ. IV trader, âall ratios for NOV , best short dispersion conditionsâ. Grant.
Quote from Grant: Riskarb, momoneythansens and IV trader. Gentlemen, A cynic may suggest this forum is all about posturing. I would never suggest such a thing. To disprove the doubters, give them clarification on the following. There are no cynics here... riskarb, âThere are some path-dependent pricing assumptions which I intend to abrogate through the discrete turnover of diametric-outliers on the long gamma component basket. I intend to show that it is possible to add significant alpha to a pure replication.â Mo translated the gibberish below âno vol-shadingâ. Raising/lowering the midpoint on the vol-market based upon the clients bid/offer to trade vol. momoneythansens, âre-straddle components that have had outliers in opposite directionsâ. See above IV trader, âall ratios for NOV , best short dispersion conditionsâ. Grant.
Riskarb, So âpath-dependent pricing assumptionsâ¦â are âre-straddle components that have (had) outliers in opposite directionsâ? Got it. Grant.
The premise centers on the probability of producing adequate #s of paired but opposing outlier component positions which may earn more on gamma than is lost to the premium paid on the vol-swap, component vol // index vol. Paired-opposing outlier positions will be offset and replaced with fresh atm gamma. Straddles will be used for index and component positions.