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Approximation of an Autocall (trigger 100%) with ATM options prices

thank you very much for trying to answer this question, and I hope it will be helpful to everyone in my situation. I am preparing for an interview, and I've come across these three questions on the ...
Arbitrageously's user avatar
1 vote
1 answer
123 views

P/L table for a delta hedged position

I am trying to replicate the table at pag. 119 of Dynamic Hedging by N. Taleb with no success. In the example called "A misleading delta" an operator has the following position: long \$1 ...
Enrico's user avatar
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2 answers
179 views

How to conclude which option is overpriced (by using implied volatility)

I have a small question regarding how to conclude which option is more overpriced? See the following table Option Theoretical Value Option Price Option Implied Volatility 7.00 8.00 26% 6.00 6.75 28%...
bigstreet's user avatar
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1 answer
153 views

PnL of a delta-hedged straddle

On Twitter, this question has been making the rounds: If you sold a 30 vol for a one year out at the money straddle, have access to free, perfect, and continuous delta hedging, and stock realizes a ...
snoreBore's user avatar
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18 views

Setting Bid-ask for option forward-type strips

do you know if there is any methodology on how to define spreads when fx option market maker is trying to quote for exaple various fx forward strip strategies? From bbg ovml or software which we are ...
Kos3_'s user avatar
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We can forecast the direction of (constant maturity) implied vol of various indices well. Is that useful?

We've been financial building ML models for years, and have multiple portfolios live - but we're new to the volatility space, none of us are options traders. How could we effectively use implied vol ...
Mark's user avatar
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143 views

Do options/prop trading firms put any effort into predicting (the direction of (implied)) volatility?

What are the "best practice" models that quant firm that trades options would use to "predict" (let's say SP500) implied vol, that they integrate into their decision making? Do ...
Mark's user avatar
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2 answers
120 views

Constructing payoff with options

Suppose that COMPANY A has issued a special bond that does not pay any coupons. At maturity T, the bondholder receives the principal (face value) equal to 1,000 plus an additional ...
Maurizio Marinaro's user avatar
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62 views

Why a Short Iron condor payoff is showing always positive

I created a Short Iron condor on Nifty 50 index European option for 9 Nov weekly expiry on 1 Nov morning 10.30 AM (live market). It's payoff is showing always positive curve. Why ? However when same ...
pmr's user avatar
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73 views

A naive approach to choose a strike

The idea is to choose a strike base on the premium and historical data to have maximum profit. For example a selling a (European) call. $$Profit = Premium_K - (S(t) -K)^+$$ Replacing $(S(t) -K)^+$ for ...
aoliv's user avatar
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What would be the practitioner way of hedging jump risks?

I have developed a keen interest in volatility strategies and have implemented various approaches based on practitioner delta. This delta is meticulously calibrated using a no-arbitrage implied ...
Frank's user avatar
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Arbitrage between gamma and delta on smaller timescale in options selling

I have observed that sometimes (mostly for OTM options) near expiration, an increase in option price cannot be fully explained by delta and theta(given volatility is constant). The gamma spiked the ...
Dsp guy sam's user avatar
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1 answer
231 views

At what threshold on delta percentage should I hedge my option portfolio?

I am able to identify and build an option portfolio with long/short call/put options across different strikes and expiries such that the gamma is positive and cost is negative. Upon inception I hedge ...
pavybez's user avatar
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Accounting of a stock put option for Monthly % Changes

am looking to backtest a strategy of systemic put buying on an equity index (e.g SPX Index) so say a strategy of buying 1Y 90% SPX Puts rolled 1 day prior to expiry. As opposed to only calculating the ...
nzc's user avatar
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Options strategy expiration probability

Big picture For any options strategy, for any segment between zero profit (breakeven) points, I want to calculate probabilities of the underlying instrument price will be within a segment at ...
plkn's user avatar
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1 answer
402 views

Optimal delta-hedging frequency when gamma scalping

Is there a practical way to calculate a delta threshold for rebalancing when gamma scalping? I know it does not effect expected P&L, but what about optimizing for P&L sharpe ratio after ...
helloimgeorgia's user avatar
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Input/References on Generating Exit Signals for Positions that Profit Very Highly from Extreme and "Unpredictable" Events?

For focus, let us restrict the scope of this to vanilla options-based positions/strategies. In a lot of the accounts that I've seen of those that engage in this sort of investment/trading strategy (...
QMath's user avatar
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question on risk reversal P/L example in Euan Sinclair's book 'positional option trading'

I am reading Euan's book, ‘positional option trading’ and have a question about risk reversal P/L example. Here is description 'Consider a 1-month risk reversal on a \$100 stock. The 20-delta put (91 ...
fred222's user avatar
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2 votes
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Is there a strategy to increase the granularity of a deep in the money options contract?

My aim to get as close as possible to a "mini" deep in the money options contract. But mini contracts aren't generally available and buying regular 100 packs of high priced stocks is ...
user27636's user avatar
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1 vote
1 answer
99 views

In the CRR model, describe the strategy replicating the payoff $X=(S_T-K)^{ +} +a(K-S_{T-2})^{+ }$ for $a \neq 0$ [closed]

In the CRR model, describe the strategy replicating the payoff $X=(S_T-K)^{ +} +a(K-S_{T-2})^{+ }$ for $a \neq 0$ $X$ consists of two parts: European call option with strike price $K$ and expiration ...
timofiej8384's user avatar
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Trading options - risk adjusted return

I have often wondered what kind of risk restrictions do traders of options in Hedge funds have but have not managed to find any information on this matter. I presume there must be some kind of measure ...
fwd_T's user avatar
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2 votes
1 answer
70 views

Reverse convertible coupon determination

I had a question about the coupon level determination for a simple reverse convertible product. Assuming risk free rates are 4% while premium on short put is 5%, typical text-books would then quote ...
Mazarin's user avatar
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1 answer
434 views

How to simulate a delta hedged option strategy

I'd like to do a montecarlo simulation of a $\Delta$ hedged strategy (long OTM call) to see how the PnL distributes on cases like: $\sigma_{bought} < \sigma_{realized}$ $\sigma_{bought} > \...
Oliver Mohr Bonometti's user avatar
1 vote
1 answer
305 views

$\mathbb{Q}$ measure and $\mathbb{P}$ measure, trading strategy

I just want to be sure if my thinking is correct and does not have any flaws. Let's define stock as a process $S$ (see the picture below) with real-world measure $\mathbb{P}$, where $p=0.9$ and Bonds ...
lukas kiss's user avatar
1 vote
2 answers
234 views

I can’t understand why the premium of two butterflies with same strike but different broadness are approximately the same

Consider the following premiums of calls option with different strikes. C90 = 57.35 C95 = 52.55 C100 = 47.3 C105 = 42.9 C110 = 38.25 In this case, the butterfly 90-100-110 cost 1 and the 95-100-105 ...
Alexandre Borel's user avatar
1 vote
0 answers
154 views

Why should delta-neutral backspread always result in credit?

Natenberg mentions in chapter titled "Volatility Spreads" : under the assumptions of a traditional theoretical pricing model, a delta-neutral ratio spread where more options are purchased ...
Shreyans's user avatar
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2 votes
0 answers
96 views

What are some good books to get started with option theory? [duplicate]

Recently graduated in econometrics but starting to realize my knowledge is limited. Any and all tips are welcome!
Max van Leeuwen's user avatar
6 votes
2 answers
3k views

What is gamma to do with realized volatility?

I keep hearing that gamma is a bet on realized volatility. That is, if we are long gamma then we need higher realized volatility to come in the future in order to make a profit. from other source: If ...
dopller's user avatar
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117 views

Risk-managing vanilla books (sell-side)

I am interested in learning more about how traders risk-manage books of vanilla options. I presume there should be a fairly standard list of facts. For the moment, the area of interest is FX, as ...
fwd_T's user avatar
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Using delta as probability of an option expiring in the money

I understand that delta can be seen as a probability proxy for an option expiring in the money, as well as deltas for call options ranging from 0 to 1 and deltas for put options ranging from 0 to -1. ...
user14664032's user avatar
2 votes
0 answers
1k views

What is a skew swap?

I'm watching a video where hedge fund manager Cem Karsan describes the basics of his strategy as a "skew swap". I understand that he's buying/selling index options at different maturities to ...
Alex's user avatar
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2 votes
1 answer
1k views

Delta hedge swaption straddle

Let's say you decide to buy a 2Y10Y ATM swaption straddle (i.e. buy 10 million ATM payer swaption and buy 10 million ATM receiver swaption). In order to delta hedge, I believe you would short the ...
sn98's user avatar
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-1 votes
1 answer
188 views

Why does bull call spread shows higher payoff than bull put spread?

I am trying to compare bull call spread and bull put spread for equity index option. For the options where the put call parity holds, I am getting a different payoff for bull call spread and bull put ...
Sumit's user avatar
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2 answers
246 views

Best/worst case scenario after selling OTM call option

You decide to sell a European call option that is currently 10% OTM (for example the strike = 100 and the current price = 90). You have to delta hedge to keep the delta of your position at 0. What is ...
sn98's user avatar
  • 21
3 votes
0 answers
199 views

How to backtest multilegged options strategies?

I have got historical data for the index options. Now I am looking at backtesting some of my strategies with this historical data. I would like to backtest strategies like selling a straddle and ...
Abhijeet Singh's user avatar
4 votes
0 answers
164 views

Finding optimal calendar spreads and diagonals

I am looking for some pointers on risk/return profiles of calendar spreads and diagonals with different strikes and expiration dates, preferably based on historical backtests with SPY options. Please ...
vonjd's user avatar
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0 votes
1 answer
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On P and L of backspread

Does anyone know how the P and L on put backspread changes as a function of implied volatility and longer expiration? One wants as much gamma as possible as far as I understand, in turn being related ...
user123124's user avatar
2 votes
0 answers
517 views

Breeden and Litzenberger formula for pricing state-contingent claims

I am reading these two papers Prices of State-Contingent Claims Implicit in Option Prices and Implied Risk-Neutral Distribution: A Comparison of Estimation Methods. I understand how we get the formula ...
F.G's user avatar
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1 vote
0 answers
266 views

Valuing Option Credit Spreads

I'm trying to come up with a metric to value and compare spreads. One way that I was doing this was to compute the Expected Value of the spread. To calculate the expected value I used the following ...
geofflittle's user avatar
1 vote
2 answers
337 views

What is this option strategy called?

I have been playing with option strategies in order to understand the advantages/drawbacks of all of them. Then I realized this type of strategy is not so advertised in the web and cannot find any &...
Saverio's user avatar
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1 vote
0 answers
87 views

What's a sensible way to measure correlation in the volatility surface?

Lets say I construct a parametrisation of the volatility surface that lets me infer dynamics i.e correlation between strike vol. Is computing the sample correlation (after controlling for spot-vol ...
j bloggs's user avatar
0 votes
1 answer
508 views

Barrier Reverse Convertible

I am a finance student and during my free time I try to understand more financial products. Today I have found a term sheet for a specific type of barrier reverse convertible but I couldn't understand ...
Rheromaster's user avatar
0 votes
1 answer
112 views

What kind of stock's prices are most affected by option trading?

Option trading translates into stock trading via market maker hedging. For instance, if I buy a call option, the market maker will have to buy the stock to delta hedge. Thus, this should translate ...
Slow Learner's user avatar
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2 votes
1 answer
258 views

How to find the price variance of an infinitely expanding Binomial Tree?

How to find the price variance of an asset in a Binomial Tree Model? Suppose the price of the Stock is $S_t$ at time $t$ and it has a probability of $p$ that will go up $u$ times to $u \cdot S_t$ and ...
Anirban Saha's user avatar
1 vote
2 answers
1k views

Would it be possible to combine long butterfly with long straddle, achieving profit no matter the outcome?

This has been bugging me for a while, I feel like I'm missing something. Simply put, a long butterfly will make profit if the price at maturity does not change much, as shown below A long straddle is ...
user51413's user avatar
0 votes
0 answers
22 views

Determine if max profit/loss on group of option legs is unlimited

Say you have a group of option legs for a symbol either for a strategy like a vertical spread or maybe an iron condor. Each with different strikes, expiration dates, etc. Without identifying the type ...
user50810's user avatar
0 votes
1 answer
125 views

Pairs trading on two options or option and underlying?

I have been looking into pairs trading strategies (stationary linear combination of multiple securities) for options. Multiple related options or option and underlying over small periods of time such ...
Abhishek Kumar's user avatar
1 vote
1 answer
403 views

Call spread hedge

I'm trying to understand how a call spread is used for FX hedging. The example that my book gives is when we have USD receivables in 12 months which we want to convert to EUR and we want to hedge ...
Nick's user avatar
  • 23
0 votes
1 answer
114 views

Strategic Asset Allocation and Multi-Asset Class Option Based Tail Risk Hedging

If a Strategic Asset Allocation is defined as an asset allocation to weather all investment environments and one which should be employed in the absence of any market views, it would appear that the ...
AlRacoon's user avatar
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0 votes
1 answer
948 views

Managing/Hedging strangle with futures at strike prices

Since I am very new to options, I thought would be great to ask the opinions of the experts in this group. Please note that I will hold strangles till expiration. The goal is to sell strangles (OTM ...
rockav's user avatar
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