riskarb's trading journal

He is just mad cause he could have flipped the double barrier option for $100k and instead let his common sense and level-headedness talk him out of it

 

Yeah, but I don't like the fills in the UK, and the vols are all <25%. They seem a little slow on the uptake.

 

I actually would've considered it, as I will be trading more 3-8 week stuff but I didn't like the debit at 3:5. Only those credit spreaders like to trade those short odds. =)

 

Honest question. Do you also consider a double barrier for a short-term period if you can flip the exotic well before expiration. For example, I stil think 1190/1300 is the range for the next 2 weeks. If you got in and the posiiton increased in value given a few days of churn, would you take the profit and get out or since you hedge with futures it would be too much to unwind everything and get ou.

 

any broker out there that will allowed retail to trade 'em or its an SEC rule ?

 

Sure, but it doesn't pay to be flipping these positions. For example; I would consider trading a 6-week position with an expected duration of two weeks, if there was an event-driven kink in the vol-tenors that coincides with that macro-event. Often the vols are overestimated and any reduction in daily sigmas will cause all vols to flatten.

I take a 6% hit, on average, on covers. The edge-loss is convex as well... close to expiration you get killed.

 

Funds can trade them, but US retail can only trade spot, not the options.

 

SP Straddle

Sold 20 June SP [$250 handle] 1280 straddles at 13.60% vols, $26.50 credit. My feelings are that we'll churn here at 10% on stat-vols. Expect to meet some resistance here, but I don't expect to revisit the lows of this week.

 

Yeah that is what I was thinking in general because right after we spoke about the barrier the market was down and moving well away from the call sttrike making it look more probable since there was a lot of support still. Since the market moved more towards the middle, I figured that is what explained the jump in value you posted a week later. So if you see a tight range over the next week or two, you might put it on and see if you can get some profit as the value(?) converges to the max profit slowly.

 

I think at worst the market might test the ends of the breakeven points at some point (1254 or 1300) on a nice swing but will hold steady. The upswing will see vol contraction so you could get out and the downswing will decay a tad. I would think you could hedge easily anyone on a move to 1260.