Quote:
Originally Posted by FXpert
I bought what was a 25 delta dollar call with a strike of 116.75 with expiry of 19 Nov on Oct 19 drivin by a kink in the smile. I hedged of the delta, which was good, vol dropped late last week and early this weak so my gamma shot up and it got to the point where at spot low delta was 5 delta. Spot popped and so did vol, so I've made delta and vega. Now it seems like 117 by 19 November is realistic. So I've got a conundrum...do I hedge my delta or leave it unhedged? For now I'm hedging less frequently, each half figure, and luckily, because vol popped, I'm less long gamma, so my hedges are smaller in size. I think I'm going to stick to this strategy to 116, and then hedge every 10 pips until 116 so I can make bunch of little balances, and after 116.50 I will only hedge below, but leave the upside uhnedged so that my spot position doesn't offset my options position too much. Maybe I'll only hedge at specific delta levels. Any thoughts on 117 by 19 nov?
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Hey FXPert,
You're hedging by price solely? Does that happen through a program or are you doing it manually? Personally, I would stick to regular time intervals because 10 points will come and go every 15 minutes if underlying volatility dries up and we get another period of range trading.
As for the USDJPY reaching 117.00, I think it has a good probability attached to it. Though the medium-term time frame (daily for me) is down, the longer term has been in a broad range or wedge, so it could easily get back up to 120 given enough time - beyond that it gets more speculative on direction. However, in your less than three-week time frame, your increasing your burden. Momentum is healthy now (and if it continues, you we could to 118 in another week's time), but we are winding down on serious event risk that will supply the dollar, yen and equities with price action (of course if we have a big upside surprise from NFPs on Friday, you could simply book profit on the position // or a downside surprise could leave your position treading water permanently). And, considering a few technicals building in the area of 116.80-117.25 (resistance zone, the October pivot, big 50% fib, 100-day SMA) technical traders may take their time in running the pair up to 117.
All that being said though, I think you position is based on both a reasonable price objective and time period; and the active hedging will reduce your risk as long as you monitor the spreads on your adjustment.
If you don't mind me asking, what program are you using to generate payout, greeks and theoretical pricing? I've been pretty disappointed by what I have seen for FX options and I don't have the technical expertise to simply adjust the free equity modeling programs for FX.
