A question for the experts

D

darkshogun

I made these two demo trades on 2/25. One is an IWM MAR 106/113/116 butterfly. IV of these options at the time of the trade were 24.06, 18.48 and 16.42 respectively. The other is an IWM MARCH 107/112/115 butterfly. The IV of these options at the time of the trade were 23.37, 19.96 and 17.13 respectively.

I'm surprised by the rapid incline in value on the 107/112/115 butterfly compared to the 106/113/116 butterfly. I'm trying to understand exactly what caused it. Implied volatilities are greater on all legs of both butterflies than at the time of trade initiation. Correct me if I'm wrong, but I'm guessing it has to due with the volatilities rising or falling at different ratios between the two flies, as well as the risk profile (one puts about $4000 at risk while the other puts about $2000 at risk), and the different deltas. I'm also guessing that if the volatilities dropped instead of rising at the same ratios, the 107/112/115 fly would be hurting right now, losing value as fast as it gained value in this example. What's your take? Here are the screen shots:

1znr24o.jpg


2ur44y0.jpg
 
sle said:
Over 45 degree incline, obviously. Less then 45 degrees is slow incline. Over 90 degrees is instant incline. Pretty clear to me.
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Wait a sec, we're talking about the "rapid incline" of the expiry payoff diagram? Say it ain't so, 'cause I sure wasn't expecting "value" to denote smth like that...
 
It appears to me that you have the price locked, is that your entry price on 2/25? If you are looking at the P/L for the day (2/28 - white line), then you are looking at what the P/L of that trade is if initiated on 2/28. What was your cost basis, and what are the current marks?
 
Could be wrong, but sometimes a way in-the-money option can have a wide bid/ask or last price that throws off the model on TOS. Happens more with futures options than in equity options I think.

i.e. the bid/ask/mid or last price on the 106 or 107 calls could throw the p/l white line curve off. just a guess.
 
Deep ITM options are often less liquid, especially index options. If this is the case, it is sometimes easier to fill an iron fly, as opposed to the natural.

shooter said:
Could be wrong, but sometimes a way in-the-money option can have a wide bid/ask or last price that throws off the model on TOS. Happens more with futures options than in equity options I think.

i.e. the bid/ask/mid or last price on the 106 or 107 calls could throw the p/l white line curve off. just a guess.
More...
 
shooter said:
Could be wrong, but sometimes a way in-the-money option can have a wide bid/ask or last price that throws off the model on TOS. Happens more with futures options than in equity options I think.

i.e. the bid/ask/mid or last price on the 106 or 107 calls could throw the p/l white line curve off. just a guess.
More...

These were just experimental trades. Not something I'm planning to trade live.
 
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