Volatility Tracker for January 19, 2010
Last week, I noted the very wide spread between short-term realized and implied volatilities. Although the selloff on Friday alleviated conditions slightly, [5] the spread is still large enough that traders inclined to be net sellers of options need not fear occasional daily increases in realized volatility. [6] The smartest trade in equity index options at this point might be to sell the wings and buy the guts on a dollar-neutral basis, delta-hedging…
Some traders are initially attracted to options because of the leverage they provide. But leverage, as anyone who’s followed the fate of the investment banks knows, is just a means for magnifying outcomes. A leveraged risk-taker will experience more glorious wins and more disastrous losses, like a deranged person who shouts both poetry and obscenities (instead of whispering them quietly to himself, like the rest of us).
We use options not for the leverage, but to articulate views that are…
CME Group published a paper last August detailing some of the spread types supported on Globex (“Options Spreads on the CME Globex Platform“). Most of the usual suspects are supported, but one of the most important features added in recent years is the ability to create user-defined and “generic” spread types:
Generic spreads can be defined with up to 40 legs and allow users to create delta neutral strategies. Generic spreads work in conjunction with the UDS:…
Tuesday, January 19, 2010
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