← InstitutionalLesson 21 · 4:22
Desk case: a short-volatility book through a real spike
Summary
You can follow a short-volatility book day by day through the real August 2024 path and explain what the grid, daily re-hedging, the weekend and the flipped futures curve did to it. You can compare cutting, hedging and holding on the same path, explain why the hedged book lost, and judge a desk by its process rather than one ending.
Key terms
- desk case
- A made-up book run through a real market path, day by day, to see the decisions and results.
- short gamma
- The position of someone who sold options, who loses a little whenever the stock moves.
- contango
- A volatility curve where later months cost more than near months, the usual shape in calm times.
- backwardation
- A volatility curve where near months cost more than later months, the shape of stress.
Check yourself
Answer each question to see why the right answer is right.
1. Before the first trade, the grid replayed August 2024's shape (index down about 8%, VIX up 25 points) on a book that collected $1,540. What did it say?
2. Theta paid about $35 a day, yet the hedged book was down $1,825 by the Friday before the spike. Why?
3. On the Monday after the weekend, VIX touched 65 and closed near 39, and the futures curve flipped from contango into backwardation. Why did that hurt this book most?
4. On the same real path: cut on Monday locks in $3,309 before costs; holding and hedging ends down $487; buying ten $90 puts for $0.81 on Friday makes Monday's loss $1,815 and ends down $588. What does the lesson say protection does?
5. The book that never hedged ended best, up $1,540. Why does the lesson say not to copy it?
Finished the video and the quiz? .