$BTC
DB 26 Jun 9k straddle trading 2175 mid with 50 days to expiry
FTX Q3 Move priced 2620 with 91 days of volatility
How would like to be long Q3 move given the optionn with 40 days of zero net movement, your position would only have decayed 425 ish pts?
Conversation
These move contracts also have autocorrelation and are very slow to react when a move strikes; also have more liquidity than at the looks (100 btc volume within 5-10 pts tops)
eg: These moves should ideally have some delta, since strike undecided; but they sure do not act as that
1
1
these make them good delta vehicles as well;
eg btc ticks up to 11k; ideally at the same vol these move should be calculated as 2620*11k/9.3k; but you could buy it at say 2700-2800 because these are extremely slow to price!
1
1
Replying to
Need to play with it myself; hunch is in the monte carlo pricer the path towards lower strike really hurts the floating strike straddle so may be why. Maybe call Sam to check how FTX prices it? Can also pm me to discuss.
1
1
Replying to
had a chat with Sam, a while back
FTX usually underprices, which even if we assume they take vol as a function of spot/path, need to price with an inverted smile and a huge skew towards the downside to justify these prices and the way they move with spot
2
2
Hi guys, what does "1.25" refer to in this formula?
I guess it's related to the time till expiry but can't figure out the unit... 🙄
1
Ah I think this is the weird sqrt(pi/2) factor.
In math terms--stdev = sqrt(pi/2) * EV(absdev)
In English--volatility is about 1.25 times the expected absolute (linear) BTC move. (Vol is sqrt(sumsq(moves)), so it upweights big moves relative to linear average.)