In this episode, hosts Mark Longo and Dan Passarelli dive into the world of Asian options, a type of exotic option. They explain how these options differ from standard "vanilla" options by basing their payoff on the average price of an underlying asset over a specific period, rather than its price at a single expiration date. The hosts break down the two main types: fixed-strike and average-strike options, providing clear examples of how their payoffs are calculated. They also discuss the historical origins of the name "Asian options" in the Singaporean commodity markets. The episode highlights the primary use case for these options: reducing volatility and hedging against wild price swings, making them particularly useful for industries like commodities, energy, and foreign exchange. The show also includes the popular "Mail Call" segment, where the hosts answer a listener's question about options flow and market volume statistics for August.

[0:00] Intro and episode overview

[2:50] Introduction to Exotic Options

[4:05] What are Asian Options?

[7:00] Average-Strike Asian Options

[10:15] Fixed-Strike Asian Options

[14:00] Use Cases for Asian Options

[17:30] Mail Call: The hosts open the mailbag to answer a listener question about options flow and market volume in Q3.

[29:00] Final Thoughts and Conclusion

Join your hosts, Mark Longo and Dan Passarelli as they dive deep into the world of exotic options, tackling questions about their name, their role in the 2008 financial crisis, and whether they're just a marketing gimmick. They also tackle more fundamental questions on scaling into a trade and the practicality of making all options cash-settled. The episode concludes with a forward-looking discussion on how algorithmic and AI trading are reshaping the options market.

[00:00:00] - Intro & Sponsor

[00:07:00] - What Are Exotic Options?

[00:10:00] - Exotic Options & The 2008 Crash

[00:15:00] - Scaling into a Trade

[00:20:00] - Cash-Settled Options

[00:25:00] - Open Interest Updates

[00:30:00] - The Rise of Algo & AI Trading

[00:35:00] - Outro

In this episode, our hosts Mark Longo and Dan Passarelli dive into listener questions and hot topics shaping the options market. They break down a recent VIX trade, discuss the fascinating and volatile world of a popular new options stock, and answer a question about the increasing prevalence of exotic "event markets" on brokerage platforms.

Timestamps

• 4:21 Mailbag: A review of a recent VIX flash poll.
• 5:34 The final outcome of the VIX 25 calls.
• 7:18 OPEN stock volatility and listener trades.
• 9:53 Results of a flash poll on trading OPEN.
• 11:00 The question of the week: Are you comfortable buying and holding the SPX right now?
• 13:41 Market Taker Question of the Week: How special cash dividends can lead to strike price adjustments, using an example from Pilgrim's Pride.
• 16:47 Listener question on the possibility of exotic options on major brokerage platforms.
• 21:48 Listener question about the rise of "event markets" (football binaries) on brokerage platforms.