Re: Grudge Match - The Saga Continues......
kenntona said:
Your question was which short gamma position will ya be in a more "panic" state ahead of Non Farm. From theta perspectives, wouldn't the shorter dated (short) option position be better off, assuming same strikes?
False. You can neutralise the short 1.245 call with a plain vanilla 1.245 call, but to neutralise the knock-out at 1.2675, you cannot short any calls above 1.2675. Else in a runaway situation, your short KO position will be knocked-out, but you will be caught naked on the short call position.
Chilling out this weekend:
Smoke Sheesha and have Turkish coffee and tea on Arab Street; or
Sip wine at Villa Bali?
Nope...if u are very short gamma ahead of a major risk event, it's the scariest thing that could happen to you and u get killed big time if spot moves when the number released is far off from mkt expectation
Just look at the breakeven of overnight options say u sell at 15 pct vol ( spot 1.24 n strike), and breakeven is 15/24 times the square root of 1 ( for being just one day )
...the breakeven on a straddle is 77.5 usd pips on either side of call or put so your breakeven into the next day is at 1.2325 and 1.2475
For 10 mio eur notional a leg of that straddle...u get to keep bout 70k usd theta...U will be a happy man if spot doesnt break ur breakeven points and u square your position right at expiry.....
But what if ......
Say spot moves 150 points after the number......so 1.2550, ur b/e is broken, you're down bout 150k ( coz ur short 10 euro there) ....Wot do u do ?....U hv to stop loss....say u do half there at 1.2550
then if spot collapses back to the strike....u r even more screwed...
Generally, everyone wants to be long the major risk event and short the day before....
Hence we see a big vol spread before and after the event...sad mkt but it's true
U're correct on the hedging of the RKO....swee2x..
