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FLY swaps
Hello everyone,New to this forum, hope anyone can advise the following?what's the rational for a fly trade? I'm not talking abt the usual butterfly options, but swaps.for example,Pay 10 y leg delta +20kRec 20y leg delta - 40kPay 30y leg delta +20kI think it's meant to take advantage of the curvate along different tenors, but can someone elaborate more?Thanks guys.Gid
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- Martinghoul
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FLY swaps
It's just a trade to express the view that the curve is too convex/concave (convex in your case, although your deltas are the wrong way around).
FLY swaps
Thanks for the quick reply, from expertWas talking abt paying 10Y/30Y fixed, rec 20Y fixed. the delta in the correct direction I think? or maybe you and i are thinking abt different things...anyway assuming the structured as what is descriped above; so at inception we're delta neutral; my initial thought abt the rational is , trader bet realized 20Y rate will be lower ( convex ), hence profitting from the curve mismatch.Correct me if it's wrong.?cheers
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- Martinghoul
- Posts: 188
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FLY swaps
Yes, it's just when you talk about 'delta' for swaps, I think of DV01, which is positive where you recv fixed.You put on the fly in the way you gave (i.e. you recv the belly), when you expect the curve to become less convex, i.e. the 'humpiness' of the 20y rate (as measured against 10y and 30y) to decrease.