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Back-end rates vols finally start to show some signs of life....

After a very long period of flat term-structure/flat skew rates vols finally start to show some risk priced into the next few months, with steepening (as much as one can call a 0.2vol spread a steepness...)

After a very long period of flat term-structure/flat skew rates vols finally start to show some risk priced into the next few months, with steepening (as much as one can call a 0.2vol spread a steepness...)

Given the the rates narrative has changed significantly over the last few sessions, we could see some fast-money accounts trying to chase the TY lower (either via options or via hard delta)

I like playing the put skew via spreads, as I don't see a case for an acceleration

I like playing the put skew via spreads, as I don't see a case for an acceleration

So it's the weekend and seems like the perfect time to touch on one of the most deliberated and discussed subject in option trading - the weekend effect

Any option trader knows that the weekend has some kind of strange effect on implied volatility and there is not one truth

Any option trader knows that the weekend has some kind of strange effect on implied volatility and there is not one truth

when it comes to how we should treat the weekend in vol pricing... this is mainly b/c of the fact that option pricing uses actual days (i.e., 365.25 if we want to accurate), while in fact there are roughly 250 trading days/year (ex. weekends and holidays)

this mismatch between act days/trading days creates two effects :

1. it requires us to discount non-trading days when pricing volatility ,

2. it creates a discontinuity in price dynamic, which we should account for (weekend gap on Monday)

1. it requires us to discount non-trading days when pricing volatility ,

2. it creates a discontinuity in price dynamic, which we should account for (weekend gap on Monday)

If you want to know how FX is being driven by the move in long dated rates, you just need to look at the substantial repricing of the back end of the entire FX market (mainly EM, and few DM to some extent).

In the "post-corona" long dated rates have been sold across the world

In the "post-corona" long dated rates have been sold across the world

Few thoughts about US long dated rates this morning....

Obviously the long dated rates moves was on the card for quite a while (lagging behind the forward-looking inflation measures, like 5y5y forward inflation)... it didn't take too much for rates to start moving post GA

Obviously the long dated rates moves was on the card for quite a while (lagging behind the forward-looking inflation measures, like 5y5y forward inflation)... it didn't take too much for rates to start moving post GA

results. Obviously we still need a confirmation with regards to who won, and who will control the senate, BUT, the move in rates looks imminent regardless...

Few things that caught my eyes:

1. TY put skew has steepen (which makes sense given how high rates can go from here

Few things that caught my eyes:

1. TY put skew has steepen (which makes sense given how high rates can go from here

In financial market we tend to think that carry beats everything... being long stocks, short vol, long EM.

Almost every macro/volatility trade is essentially a carry trade. When markets are calm and nothing happens we get compensated for holding risky assets.

Almost every macro/volatility trade is essentially a carry trade. When markets are calm and nothing happens we get compensated for holding risky assets.

I recently had an interesting discussion with my friend @amirwe about carry in EMFX.. He claimed that If i ran a strategy that PAYS 1yr USDTRY outright forward at the beginning of every year since 2010 I would have made a killing... That sounded quite counterintuitive to me

One of the biggest flaws in financial time-series analysis is looking at the data as a function of time.

Obviously it's the easiest way to analyze data, as we can plot it nicely, calculate the volatility, etc... but when we analyze data in a dimension of time we usually get

Obviously it's the easiest way to analyze data, as we can plot it nicely, calculate the volatility, etc... but when we analyze data in a dimension of time we usually get

biased results. why? because we are extremely sensitive to our selection of sampling frequency/length of sample window.

Just think about the most useful tools in your quant toolbox : realized volatility and z-score...

Both are usually measured as function of time (and relative

Just think about the most useful tools in your quant toolbox : realized volatility and z-score...

Both are usually measured as function of time (and relative

to historical sample window), but who said that volatility evolves at t-fixed time intervals? the underlying fluctuation is not a function of time but the orderbook imbalance.

Also, let's say that I dynamically hedging my delta, am I really using fixed t-intervals, I guess not.

Also, let's say that I dynamically hedging my delta, am I really using fixed t-intervals, I guess not.