Something to Leave you With

Discussion in 'Strategy Development' started by Spectre2007, Mar 22, 2017.

  1. wintergasp

    wintergasp

    Niiiice.

    How much money do they lose using this ?
     
  2. It's extremely dangerous for probably 99% of the traders that apply it. It's a tool more than anything.

    Active Algo Straddle.

    Here is something to think about, calculate the days to expiration 2340 strike /ESM7 , calculate what the straddle is priced at currently. Now if you designed a algo to actively straddle the price, and sold the straddle in options, but used algo to actively go long straddle. Is there a arbitrage opportunity between futures and options using technology.
     
    Last edited: Mar 22, 2017
  3. That whole sentence...or thought... kind of applies to the collective, whole trading world -- only 1% will basically survive, and more importantly Thrive, fruitfully :p :confused:
     
    Last edited: Mar 22, 2017
  4. JackRab

    JackRab

    how would you 'straddle' the price with a future?
     
  5. An algo that is on 24/7 constantly maintains position bias, using the strike price as the pivot.

    If you bought June expiry 2340, the puts and calls were trading around 50, so breakeven on the straddle anyone who buys it is +- 100 points.

    Pocket 5k, and the cost of a 24/7 algo need to be under 5k to arbitrage with technology and make profit.

    The costs of the 24/7 algo increase only if the price trades through 2340 enough times till expiry to go over 5k.

    The costs come down to infrastructure/technology and capital deposited in account.

    So the straddles in options market are overpriced secondary advent of technology.
     
    Last edited: Mar 22, 2017
  6. JackRab

    JackRab

    So your algo is trading at the straddle limits? bid@2240 ask@2440?
    Or is the algo hedging by selling @2240 and buying @2440, since you're short the straddle?
     
  7. Sell /esm7 June expiry 2340 call and put ~ 50..

    Collect 100 premium.. or 5k

    So breakeven for buyer is +- 100,.. 2240 / 2440

    Setup tech/infrastructure/algo, go long above 2340 and short below 2340 .. keep it active from power failures. Keep it on till expiry. Scale up quantity as account size allows.

    Citadel apparently does, .. just got off phone from friend/trader out of Chicago.

    Can only do this with strikes with a certain STD off the average daily chart. If you institute with strikes in middle of consolidation zone, the quantity of crosses will be greater than the premium collected.

    Time value decays as you approach expiry, and you can choose to exit the straddle and turn off the algo.
     
    Last edited: Mar 22, 2017
  8. JackRab

    JackRab

    Yeah.. so you're just gamma short neg-scalping to keep delta flat... nothing new there... it's a pure vol play, you're saying IV is too high.

    I assume Citadel is doing dispersion.
     
    i960 likes this.
  9. The arbitrage between a synthetic in futures and options straddle exists. The options are over priced.

    The question becomes why hasn't it been arbed out?..

    Synthetic(algo) futures straddles end up with fixed starting costs.

    Big houses are actually selling the straddles.
     
    #10     Mar 22, 2017