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Is your trade on a liquid financial instrument; or is "related" to markets with idiosyncratic (and thus unhedgeable) funnies??? That makes a huge difference to the prices/odds/spread-differentials offered... SOP is to simplify the complex into the closest approximating liquid options...


You can go short eurodollar futures. The contact months go out for years and is tied to LIBOR rates, which are tied to fed funds


You are absolutely right about momentum strategies having loadings on industry. But that's also where the risk premium originates from - see this paper by Moskowitz and Grinblatt. In a broader sense, most factors have loadings on other factors (e.g. Quality often has loadings on Size) and that's why they are called factor "tilts" instead of "...


Shadow barriers (the fx name for this strategy) work for market makers as they super-replicate the option in question. The trick here is to realize that the option bought from the client was priced and hedged with the lower barrier in this case. So we bought it for cheaper than fair value and have moved the delta gap below the in barrier of the real option ...

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