Riskarb's combo to fly conversion journal

Rambus is the shiz! We're sitting at the neutral-strike. The Jan straddle should be $17 by the close tomorrow. Expecting the PF to come in 5 handles or so to $22. Looking for vols breaking below 58% at the open. Should close at 45-50% vol.

Did you trade the PF mahras?

 

Yep I actually ended up doing the 35 PF. The way I reasoned it was that the PF credit on the 35s were higher than those on the 40s. Although both were below the 1.5*ATM (~19.5) straddle yardstick, the 35 PFs were less so. I don't really know whether the logic was right or not but I was playing with just 1*2 contracts so decided to go ahead with it. Credit=$15. IVs should deflate judging by the AH reaction.

Whats your exit strategy though? There is some lawsuit bogging down RMBS apparently which, if it wins, could propel it (wouldn't be too nice for me). I am thinking of taking profits because I am estimating the vols to be around the 80s on the May.

BTW would be great if you started up a vega trading journal. Put in some time-flys in too.

 

Was thinking about trading RMBS, but talked myself out of it. CRAP!!!!

 

You have to factor intrinsic value when pricing the PF -- the 35 was significantly short delta.

I'll dump my Jans based upon where vols trade over the next few days.

Too bad Cache. You'll get plenty of chances over the next six weeks.

 

Wow the 35 PF was -52 delta. The 40s would have been around -19. Dodged that but going to be more vigilant on the next one.

 

I will be absolutely surprise ( won't be a first time !) if it happens , I though the high vols are not report related but some other event in the future. Currently the MAY / JAN vega ratio is 1:3 , so if they placed the vols perfectly, after event(?) vols should hit 55 ( then MAY loses 6000 and Jan loses 2000 , same 3:1). I have no position, hope that I'm wrong and vols will drop like a rock today.
But even if its wont happen , its still very good position because stock still moves at 40 HV while theta melting at 120 vols rate for MAY. If vols will not collapse today , I will take similar position.
Thanks, B

 

You're right on RMBS. I don't think the vols are going to drop more than 1000bp from here.

 

RMBS Jan07 VOL's are still at 74... other news definitely pending. The April VOL's did not drop either.

 

I'd give it more than 45mins to react. Vols are 72 right now on the 45 strike for Jan using CRR.

 

I'll hold the RMBS positions through the weekend. Google vols are only 41% here, 38% for Jan, so any positions should be small on the sell-side.