Daveangel, I was exactly looking into that but I did not pay enough attention to two lines that explain the strike for max GammaP. It's there and all clear now. Thanks.

<t>Hello...I'd like to know how the strike that maximizes Gamma is practically used, as I'm facing it first time.Assuming I want to go long an ATM straddle, in general one leg will be OTM and the other ITM.Objective is to profit on either underlying movements or iVol increase or both.Does it make se...

<t>Thank you!Actually, I ended up using Gamma, since (dS)^2 ~ (sigma S)^2 dtKnowing the one day PnL = Theta -N x Vega0.5 Gamma (dS)^2 =PnL gives dS= sqrt( 2 PnL / Gamma )That should be the average movement of the underlying that compensates PnL in a Delta hedged position.Yet, I would appreciate comm...

Actually, I finally got it. Being dt the time period for dS, then:Annualized: (dS)^2 / dt ~ (sigma S)^2Period-based: (dS)^2 ~ (sigma S)^2 dt

<t>At the risk of sounding dumb, I must ask help for solving my doubt:The half-Gamma in the BS is multiplied by (sigma S)^2In the literature I often encounter this approximation: (dS)^2 ~ (sigma S)^2which I cannot completely understand as it seems it's missing dt.In fact, from the BM: dS = u S dt + ...

<t>Assume a generic delta neutral options position on one underlying and one expiration.Today the position has value V and carries a certain Theta and Vega.I expect that tomorrow the ATM iVol will drop N percent points.Therefore, excluding other effects, by tomorrow V will drop by the amount of Thet...

<t>Yes, the 6m USD Libor as underlying is my headache.Jimmy in this thread gives an idea about how to use the flat vol of caps on the 3m Libor and adapt it to 6m.That's the only reference on this matter that I found after googling for long. If you guys can point me to other sources, I'll appreciate....

<t>Got it.I see the incorrectness of a). Spot vols on caplets can be obtained only through bootstrapping.I may also understand #3: the method of valuing a CAP, either through flat vols or spot vols (via bootstrapping) on caplets, does not change the resulting value. Therefore, why going through spot...

<t>First: Thank you. Very clear and welcome comments.Based on that, here is my understanding. Further comments will be appreciated.1) About volatility in bps, I clearly see a case where a (ATM) swaption volatility in bps slightly exceeds the strike. This means the 6mo Libor could go in negative terr...

<t>I don't have access to Bloomberg and I don't know its screens but I received some screenshot that I need to interpret.I need to understand the Vol Cubes for Swaptions (here is the Link to one of the screenshots) in order to get their Implied Vol and apply it to Caplets of 6mo tenor with the same ...

Did not know. Thanks.This is a caplet on 6mo USD Libor.Weird, isn't it?

Actually, it's a straight spread:K2 - K1 = 1 -->pays zero if S(T) < K1pays one if S(T) > K2pays S(T) - K1 if K1 < S(T) < K2

A KO call is an "up-and-out" barrier option. The KO barrier is monitored along the path.That's not my case since the payoff is function of S(T), at expiration.But thanks anyway for replying.

I reply to myself...Thinking more, since I've K2-K1 =1, it's a long call with strike K1 and a short call with strike K2.But, if you see it differently, please reply.Thanks!

Do you see in the payoff function any condition that makes it dependent on any value of the asset before expiration?If the answer is no, then it's not path dependent.