I just noticed your reply. I forgot that you were in stat arb, you a quant fti?
Yea I read Natenburg's book too. Problem with lots of the option models is that the math is derived wrong and then hidden by suddenly skipping topics without full rigor of the reason why they do what they do. I was reading over some of the OU processes for interest rate option models and it turns out they just toss an x in front of the weiner process to keep it from going to zero. No explanation. Current research in my class shows that if you do a log transform, you...
ok yes correct, you are getting become real pro.The "smart kids" on the block still not under stands the models yet.
because they studied it from what others was willing to give.
There are some secrets about the models that will never be revealed.
Is too commercial to do so and big guns will not be happy .
here some pointers.
always box up your writes when volatility extends into profit zones within its tenure life span.
do not hold writes for the last week to maturity.
although there is no way to liquidate writes in the english options. The american options allow for early exercise. Always exercise for full delta if ever in the money 1 step in the money and manage full risk if long. If short, box em up. In real life normally full hedged looks like some kinda wierd butterfly because of speculative positionings bt players. General consensus is that the models are "fair priced". Its not, fair price means must have therotical edge like in insurance acturial tables. All greeks have builtin assumptions. Watch when the assumption do not relate to actual markets and act accordingly.
If you want to understand how the models will behave at different volatilities, you need reverse engineer the models back to the 5 greeks.And plot the 5 greek charts and see how they read. Esp teata. Always plot on greek charts the coressponding extreme on the otherside. Understand that the most important greek for managing is the sigma. Others are easy to manage with strategies.
I will not dwell into the specifics because it has no place in retail. This the big boys game, mostly institutional due to size. If they want it they need pay thru their nose for it.
regards
Whatever happened to mamood, he seemed drop off the earth.
The drawing board must be in another universe?
Maybe now he understands how "dirty" the broking businesss is?
"Difficult" is a better word.
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the body language of markets if you like.
moved a few synthetics for the final effect.
