Short straddle hedging

Discussion in 'Options' started by turkeyneck, Mar 9, 2010.

  1. To me, it's simple...

    If you're a mkt-maker, i.e. your transaction costs are low and you have pricing power, you delta- and gamma-hedge short vol positions to your heart's content. In this case, your skill as a mkt-maker is in selling the risk premium at a price that's high enough to justify expected hedging costs.

    If you're real money, whether retail or otherwise, you sell at a price that's high enough to make you happy to sit on the trade till expiry, given the depth of your pockets. I'd argue that dynamically managing delta/gamma makes so little sense for the end-user as to completely defeat the point of selling vol in the first place.
     
    #11     Mar 17, 2010