I traded the following today via UBS: EURJPY 4/2/08 expiration; NY fix 152//160 double no touch 45/100 payout Trade is neutral to 156.00 on spot.
Nice trade Atticus. From memory 160 is where the 100 moving average stands currently, and the prices have been under it for some time now. That moving average is coming down. I think that your reading of it is correct (also the recent days downtrend seems to be been broken in the area of 156). The danger seems to be fast selloff to the 152 level. I would guess that you are going to defend your position trading the spot in the meanwhile. Smart trade! Why you do not sell a strangle instead of the options you traded? I am curious. I have other questions/comments. Will come later as i am now in a hurry. Bye for now. PS: I covered the whole short position at 156.85 as I will not be around to monitor it. A nice 40 pips.
Nice trade. I think we chop on index, so I chose to short gamma in EURJPY over a similar position in SPX. FX barrier option markets are far tighter. EUR-major vols have ticked up over the last 24-hours due to the 200 pips seen on EURUSD. The equivalent atm straddle was trading 180 pips. I'd rather take the touch risk at better than 1:1. The position trades at 7bp in daily theta. I expect vols to tick lower on decreased index vol this week.
Just to let the followers of this thread, that I re-entered at 157, but sold everything when it had fallen back to 156.45. So I missed a big part of the move. I am not patient. Now I do not know what will happen in the area of 156. It is a major territory, and a reaction is possible, the low might be taken or it may just hang in that area. Good luck. Over the last 1.5 hours, I was busy shorting EUR/USD. I am thinking that it is possible that a major down move may be in the process of coming out for the EUR/USD and also for the EUR itself. Topping and bottoming are processes and not events!
So essentially you traded EUR/JPY as a proxy trade of SPX. I understand that you did it because IV is higher because of the dance of EUR. This is original. If I understand your thought process here is that you had a view, and implemented in a way where you have an edge on vol (higher than normal on EUR), and also the transaction cost edge in comparison to what you would get via equity options, in addition possibly to the financing edge (less margin?). I think that the value of your trade may double if nothing happens in 1/5 of the remaining time, and should rise even faster if vol decreases. Are you allowed to close the trade before expiration? I never traded FX options before. The way I view a binary range for instance is like a vanilla condor with strikes of the short and long of each side separated by 1 price unit. Is my thinking correct on this? If yes, I think it would be much better to trade binary range options instead of condors on equities. The only possible limitation would be that one would be limited to 1 price unit between shorts and longs of each side of the condor. The other aspect it seem to me would be that, with binary range, it is more efficient to finance and transact. What do you think of this analogy and the related aspects? If you were to recommend some fx brokers/dealers, who would you recommend?
Yes, the vanilla analog to the DNT is a condor. European range trades are far more costly due to path-dependence, but are a greater debit risk as spot trades to either outlier strike -- the trade then becomes a 50-delta futures contract. Residual value remains high but will decay as gamma flips modality. IOW, I'll choose an American barrier over a European 99% of the time due to the clarity. I don't want to hold either trade near the barriers; the Euro is far more costly and you're flipping a coin at the barrier. UBS offers electronic dealing in FX/options vanilla and exotic. Minimum is $500k, but they don't accept US-domiciled retail accounts. You'll need an LLC or foreign entity. Barclays is also a possibility.
Thanks Atticus. Great info. Too bad they do not accept US retail. I will need an LLC. I will see which country/island I should formed it in. I do not know which country you are in, but for a retail in north america it is not the best time to trade via a foreign entity as they seem to be perceived as vehicles to evade taxes. I will pursue it anyway, if not at least for the future in case I decide to manage money with/on behalf of others. Also where do you get you implied vols on currencies? I use the PHLX currencies options implieds. They are not as accurate, but they give me a sense of which pair to trade on spot (implieds are real money betting on a currency, and if the implied is high usually the pair moves). PS: I forgot to cancel some orders on OANDA from late yesterday on (short) EUR/JPY in area of 157.50. They got triggered this morning. I just covered for 40 pips, as I have not studied the chart yet. But from last day analysis, I think that pair may bounce between 157.50 and 155 for the days to come. Maybe I should keep for more pips. But since I did not study it yet, I thought just to take money and ask questions later.
Thanks Atticus. For the readers, it is 11:50: I just went short 50% of intended position at 157.65. Look to add if it goes higher and fails in 157.90 area. Stop all be tight after second addition if any.
12:15PM, I went short the remaining 50% (1.5785). Looking forward to 157 as first station to take some profits (but upside is also possible, so bulls may take my stops).