Subject: Fw: short crude vol strate y - follow-up analysis [I]
From: Paul Morris
Date: Tue, 03 Feb 2015 15:22:46 -0500
To: Stewart Oldfield ‹ >
Classification: For Internal Use Only
From: Daniel Sabba
Sent: Tuesday, February 03, 2015 12:18 PM
To: jeffrey E. <jeevacation@gmail.com>
Cc: Paul Morris; Vahe Stepanian; Richard Kahn ‹ >
Subject: short crude vol strategy - follow-up analysis
Classification: Public
Jeffrey — this is the analysis we put together and alluded to in the meeting
today. It evaluates the performance of the short crude vol strategy since
Jan 13th, when we traded. As discussed, sharp moves up in oil (WTI is up 6%
intraday today) are also negative to a short straddle strategy that is delta
hedged daily, as it causes realized vol to increase, potentially beyond
expectations. If one expects this environment of high realized vol to be
short lived, the trade continues to make sense. If one expects it to be a
continued paradigm, it might make sense to revisit holding this strategy.
Trade date: 13-Jan
Valuation date for all the numbers below: 2-Feb
We have rounded various numbers for ease.
Index return since trade date: -4.7%
The index has lost money basically because realized vol has been much higher
than implied. Some stats on this are below.
{cid:image003.png@OlD03F9B.E7126E90}
This loss has occurred over a period of 13 Index Business Days. Looking back
since index inception date, I tried to see how many times such a loss would
have occurred over a period of 13 days. This 13 Index Business Day
performance represents the 6th percentile. Here is a graph showing
performances over a 13 day period:
EFTA01412946
fcid:image002.png@OlD03F96.8850C5A01
Also useful, below chart shows implied vol atm mid for the 2nd month futures
over the last ly:
{cid:image001.png@OlD03F9D.747FC3D0}
And below is the same chart over the last 10 years:
{cid:image004.png@OlD03F9D.EDDC2F70}
EFTA01412947