Re: 2.90% ?? This is a gift
wayneL - Monday at 6:48 AM
Any reason you wouldn't go for the septembers? Less time and less vega of course. But less premium at ~1.8% of BP price, and a bit more gamma to balance.
Is it because of historically likely moves in the time frame?
* Shorter term straddles
SAJ - Monday at 9:03 AM
wayne -- Well, there's (almost) always more gamma in shorter-term straddles, so that's not really a consideration, afaic.
Historically, one could buy the U straddle and have an expectation of about 100 pips profit, gross. However, given the relative calmness of the ccy mkts for the past year, it looks a bit to me as if the trader would be very well advised just now to purchase more time.
Last year, quite atypically, buying ccy straddles in the summertime turned out to be a derivative form of death by a thousand cuts: the mkts went completely dead in the water for, oh, 60 days or so. The trader (said he, raising his hand) lost 2 pips, 5 pips, 3 pips each day. Brutal.
I suppose that experience might be colouring my decision to some extent, and biasing me in favour of the Z straddle. However, the Z trade is completely consistent with my overall view of straddling, to wit, that one must allow some amount of time for the mkts to put dollars into one's pocket. Purchasing more time -- when it's dirt cheap, as now -- can hardly be a disadvantage and is very likely, historically speaking, to actually be a significant ADvantage.
There's a political kicker this year, too. In case you don't follow British politics, the plain fact is that the soon-to-be PM, Gordon Brown, is a staggering incompetent. Say what you like of Blair, and party differences aside, but Brown following Blair rates to be something of a replay of Clement Attlee following Churchill. In other words, a debacle.
Now, when exactly the debacle occurs, well, this of course I don't know. It will, though, it will. The odds seem to me to be outstandingly high that Brown, and New Labour generally, will commit some grotesque financial/economic gaffe in short order. I'm looking to be short BP in almost all the crosses for a couple of years.
The period 7 September through Christmas Day will likely tell the tale. BP is historically very strong in Oct-Dec, and if that is not the case this year, look out. I'll even give you the possible gaffe that Brown is quite capable of making right off the bat: an end run around the electorate in order to implement the new and (haha) ''improved'' EU ''constitution'' without a vote.
You heard it here first, m'friend. Moral considerations aside (can you imagine the US ''ratifying'' a new Constitution without an enormous amount of input from the electorate? I can't), this little scheme will have the immediate effect of marginalising Sterling ... forever. Right now, Sterling is and has been strong BECAUSE Britain has insisted on having what amounts to a local veto over the assorted dorks and Marxists in Brussels. Blair, out legacy-hunting, may as his final act as PM give the OK to Brussels to tear up the local veto...and Brown, I promise you, will not only acquiesce but cheer and whip this programme right along.
Might not happen. Equally, it might very well happen, and I should look for BP to drop 10-15 handles within a year of its occurrence.
Good trading to you!