Exotic Options

[shineshaX]

Need some information on
exotic derivatives trading.

For, example, i know (or think i know) that a bank trading floor has an index exotics, index options, equity exotic structuring and vanilla options team.

I know what the vanilla options guys do.
The index option guys trade index options as flow/prop. Is this correct?

However, what is index exotics? Is this the index correlation book? Does index exotics include volatility trading/ dispersion strategies? What does volatility trading. dispersion actually mean?

What are the equity exotic guys doing?

I just don't understand the banks equity derivatives trading as an organisation. How does it work?

 

[charliechan]

buy low, sell high.

same old same old.

 

[garethb]

My understanding is that the idea of dispersion trading is to trade the degree of correlation of index components vs the index itself. With an index future the price is tied to the underlying component prices by arbitrage opportunities. The index option volatility is tied (but more loosly) to the volatilities of the options in the component stocks. I believe dispersion trading is trading/arbing this relationship.

You could, for example, be short vol on the index and long vol on the components. This then is essentially a play on correlation. If the component correlation breaks down and some stocks move strongly without the index moving as much you should profit. if on the other hand the component stocks correlate highly and their movement is reflected in the index, you lose out.

I think thats how it works anyway.

Regards,

Gareth

 

[jmreeve]

Recipe for Spicy Exotic Derivative

To a melting pot, add:

3 fresh option legs,
5 fl oz of liquid future.

Add a splash of plain vanilla swap for flavouring.
Cook on a high heat just enough to ensure the purchaser gets indigestion.

Serve cold.

 

[Robertral]

Need some information on
exotic derivatives trading.

For, example, i know (or think i know) that a bank trading floor has an index exotics, index options, equity exotic structuring and vanilla options team.

I know what the vanilla options guys do.
The index option guys trade index options as flow/prop. Is this correct?

However, what is index exotics? Is this the index correlation book? Does index exotics include volatility trading/ dispersion strategies? What does volatility trading. dispersion actually mean?

What are the equity exotic guys doing?

I just don't understand the banks equity derivatives trading as an organisation. How does it work?

Exotic option examples:

Asian option,
Whale options,
Mountain range options,

Basically, as said, anything other than what is clased as vanilla. But remember, the vanillas were once classed as exotic, so there is a fine line. What some people class as exotic is another persons vanilla.

 

[zuke]

Need some information on
exotic derivatives trading.

For, example, i know (or think i know) that a bank trading floor has an index exotics, index options, equity exotic structuring and vanilla options team.

I know what the vanilla options guys do.
The index option guys trade index options as flow/prop. Is this correct?

However, what is index exotics? Is this the index correlation book? Does index exotics include volatility trading/ dispersion strategies? What does volatility trading. dispersion actually mean?

What are the equity exotic guys doing?

I just don't understand the banks equity derivatives trading as an organisation. How does it work?

Shine

I spent qute a few years structuring exotics. If you need any help going forward re: pricing, hedging or trading them you can always PM me.

 

[shineshaX]

Shine

I spent qute a few years structuring exotics. If you need any help going forward re: pricing, hedging or trading them you can always PM me.

Here's the rest of the questions.
The key one is, who sits on the equity derivative trading floor?

Convertble bond guys
Index exotics guys
Index option guys
Single stock
Single exotics
Delta 1 team
Fund Derivatives
Is this correct?
What other teams are there?

What is delta 1?
Is stat arb essentially pairs trading?
What is the difference between stat arb and program trading?
What is index arb?
What is delta 1?
What are fund derivatives?

 

[zuke]

Here's the rest of the questions.
The key one is, who sits on the equity derivative trading floor?

Convertble bond guys
Index exotics guys
Index option guys
Single stock
Single exotics
Delta 1 team
Fund Derivatives
Is this correct?
What other teams are there?

What is delta 1?
Is stat arb essentially pairs trading?
What is the difference between stat arb and program trading?
What is index arb?
What is delta 1?
What are fund derivatives?

Shine, PM me your number and I'll give you a call over the weekend.

 

[jj90]

Exotic option examples:

Asian option,
Whale options,
Mountain range options,

Basically, as said, anything other than what is clased as vanilla. But remember, the vanillas were once classed as exotic, so there is a fine line. What some people class as exotic is another persons vanilla.

Yes, different strokes for different folks. I hear the big thing at the moment is oreo options.

 

[NotQuiteRandom]

Speaking of exotics, do you think that there is any demand for more exotic bets / options than those currently available outside of the institutional market?

The binarys / one touches and their respective ranges seem to have very limited availability in terms of strikes and tenors and there is little else out there for the private individual trading < a few 100k.

Thoughts?