I’m as far from “experienced derivs trader” as you could be but this sounds like selling uncapped vs capped variance ie you are short tails in return for carry.https://twitter.com/bennpeifert/status/1482727232317493253 …
Show this thread
-
Vega notional is $1m so variance notional is $1m/(2 x strike) and the PM was trying to make variance notional x (short strike^2 - long strike^2) which is around $1m on the trade (easier way to get there is 2 x vega notional x difference in strikes I think).
Show this thread
The realized vol after two 15% days is more or less 100% so the loss on the uncapped is about $333m (33,000 x 100^2 and the gain on the capped is about $50m (33,000 x 36.5^2 because the cap is 2.5 x 14.5) for an overall loss of $283m, that sounds insanely high so it’s possible
-
-
that I’m off by a factor of 12 (because it’s monthly not annual) or maybe I forgot to properly account for the remaining life of the swap or something, like I said not actually a derivs trader let alone an experienced one.
Show this thread -
Obvious follow up question is who is going to create the on-chain version of this to bring uncapped variance swap selling in crypto to retail? APYs would be insane.
Show this thread
End of conversation
New conversation -
Loading seems to be taking a while.
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.