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At least in my previous job FX options. O/N straddles weren't too common. It's too expensive when you buy too risky when you go short. If you want to play gamma you just go with plain vanilla if you are a buyer. From seller's perspective how would you hedge it Jimbo? Unless you are 100% sure that the mkt won't move overnight and the premium you collected will offset what you need to pay out but that's mighty risky.
The seller can buy the wings and butterfly off the position, however the wings will be at a higher volatility than the meat and the trader will give up much of the profit potential associated with taking on the initial risk.
I just heard the market come from one of the brokers.... someone looking to pick up the theta, and another banking on something crazy happening over the weekend. nothing materialized so the seller is gonna make some cash. very tough to hedge something with as much gamma as this, as you mention.
amazing, the market was made 5 at 6, and it finished at 5.5
you cant buy the wings in something like this, not in rate land. you are right about higher implied vol though.
I understand that the wings are not actively quoted, but if you sought them out, someone would make you a market. The key is.....you won't like the market and would never consider making the trade because it would cost you an arm and a leg!
ok, that's true...somethings ppl will refuse to quote though.
Jimbo ow long have you been a trader
for some time now. between 4 and 10 years.
7?
You really are a trader giving spreads like that
I think you will be fine. What underlyings did you trade?
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