Thanks in advance… I wasn’t sure some of the comments in it. USD Vol: Gamma firms! Payers richen For the first time in over a fortnight, gamma caught a bid, with shorter expiries firming as much as 0.3bp/day. Sources report sporadic trading in the interbank markets and interest to buy receivers as a cost effective way to get long. Payer skew is also higher, a logical result of the underlying rally with small size trading in 5y10y 100bps risk reversals.
Which terms do you / don’t you understand?
For example, gmmma firms; payers richen… I knew this is mainly due to the jargons I am not so familiar with. Could you help to explain? Much appreciated.
When something “firms” it has risen in price/value. Same with “richen” and “caught a bid”. Usually these are modest increases, whereas a “rip” would be a large, quick rise. Gamma is a type of risk exposure. It’s important when you’re trading volatility, because one’s delta-hedge becomes less and less effective as the underlying instrument’s price changes. Is the context of this quote (if possible, link please?) options on a swap (aka swaptions)? If so, a “payer” is a tradable instrument. In particular, a payer is an option on an underlying swap, where you can elect to pay the fixed and receive the floating. A slightly contrived example: you might want this option if you pay a floating (“adjustable”) rate mortgage on your house but are afraid interest rates will rise. If rates rise, you exercise the option, pay the fixed to your counterparty and collect the floating, which you use to cancel out your mortgage payment (also floating). This is not unlike owning a put on a stock you own to protect against an adverse move in the market.
Yeah you are right; this is the interest rate swaption. Thanks for the explanation. It’s helpful. My serious question is “gamma caught a bid; with shorter expiries firming as much as 0.3bp/day”? How to understand this?
justin88 = jdvjr?
lxwqh Wrote: ------------------------------------------------------- > Yeah you are right; this is the interest rate > swaption. OK > Thanks for the explanation. It’s helpful. My > serious question is “gamma caught a bid; with > shorter expiries firming as much as 0.3bp/day”? > How to understand this? Which part don’t you understand? The implication here is that shorter expiries have increased more than longer expiries.
ASSet_MANagement Wrote: ------------------------------------------------------- > justin88 = jdvjr? Hah, whatever happened to that guy?