Recent content by Scouser76

Perhaps, rather than using a fixed amount like 5%, which I agree, doesn't take into account the market conditions, you could use a figure related to the current volatility. Maybe try and detrend the data using moving averages or channels or whatever, and then calcuate the volatility (of returns...

Hi N, I guess I am asking, is there any way to make a pure play on correlation moves, rather than having to take a directional position as well? Perhaps a strategy that could replicate the benefits of a correlation swap (i.e betting on correlation moves and not have to worry about which...

Hi, Sorry if this is a dumb question, but it’s been bugging me for a while. I’ve read a lot of this thread but can’t seem to find an obvious answer to it. If someone takes a directional view on correlation, i.e. believes it’s going to increase or decrease, how can he/she profit from that view...

Darrenmo asked a good question earlier though. “However, if you thought the stock would drop wouldn't it be wiser to short the stock to make money on it?” The point is that when you are selling (writing), and in fact buying an option, you are taking a view on the price of the OPTION rather...

A smile (and here I include asymmetric skews too) implies that the distribution of underlying price returns (change in price / price) is NOT normally distributed. That is, there is a degree of kurtosis in the price distribution and there are (usually)' fatter tails. That being the case, it means...

No probs

Your original counterparty, who was obliged to provide the stock to you. I think you're getting selling and 'writing' (also often confusingly called selling, so don't worry) confused. If you own the call (say) option, you have the right to buy the stock from the counterparty to the option (the...

If it's liquid enough, just SELL (as opposed to 'write' another one) the option you bought. You'll get the intrinsic value + time premium back.

Indeed, the presence of a smile would suggest a trend, as a lognormal distribution of returns of asset price shouldn't give rise to one. If you define an ATM option as one whose strike is at the CURRENT spot price, then the delta will be someway off from 0.5, depending on the maturity of the...

One of the assumptions of B-S is that the underlying's price follows a Markov process, so that you can't determine what the next move is going to be from the past history. Whether this is actually the case or not is a different matter.

Hi rtrs111, Here's the way I see it. Feel free all, to correct me if I'm wrong. We don't know the strike of the ITM Put, but presumably it can’t be much above the forward value of $ 60 + 8 at expiry (i.e. $68 growing at the risk free rate to expiry), or else I could, borrow $68, buy the stock...