Experts, educate me on this options position

[JamesOptions]

Hi Elite trader,

to begin, please and thank you for your insights.
Long time lurker here. I would call my self an intermediate options trader.

In setting up the following analysis... I was experimenting with an unbalanced butterfly, and then started spreading out the expirations (unbalanced... double diagonal?) no clue what it's acually called.

Nevertheless, I was hoping some of the more expereinced traders here could help me wrap my head around this multi expiration, multi strike trade and how it makes money.

Thanks in advance

James

 

[Quanto]

Hi Elite trader,

to begin, please and thank you for your insights.
Long time lurker here. I would call my self an intermediate options trader.

In setting up the following analysis... I was experimenting with an unbalanced butterfly, and then started spreading out the expirations (unbalanced... double diagonal?) no clue what it's acually called.

Nevertheless, I was hoping some of the more expereinced traders here could help me wrap my head around this multi expiration, multi strike trade and how it makes money.

Thanks in advance

James

If market prices were used (ie. Bid/Ask), then:
MaxLoss=$65.45 (just an estimate, depends on IV at expiration of the shorter DTEs)
MaxProfit=$580

Hmm. this is a little bit different from your PnL chart (the cyan curve), maybe due to differences in used Premiums (whether Bid/Ask was used, or rather MidPrice; it's unclear from the screenshot).

Would also be interested to learn about the analysis of other experts here.

https://optioncreator.com/st5hiks

 

[wxytrader]

Hi Elite trader,

to begin, please and thank you for your insights.
Long time lurker here. I would call my self an intermediate options trader.

In setting up the following analysis... I was experimenting with an unbalanced butterfly, and then started spreading out the expirations (unbalanced... double diagonal?) no clue what it's acually called.

Nevertheless, I was hoping some of the more expereinced traders here could help me wrap my head around this multi expiration, multi strike trade and how it makes money.

Thanks in advance

James

I usually just break it down into separate positions. You have a 2/2 bear put calendar spread and a 1/1 bull put calendar spread. The 1/1 bull put spread will turn into a 1/0 long put on feb10, and the 2/2 bear put spread turns into a 2/0 naked short on feb12 exp.

It's the usual 2/2,1/1,1/0,2/0 scenario.

Is this a practice account? With the naked short what's the margin requirements?

 

[JamesOptions]

I usually just break it down into separate positions. You have a 2/2 bear put calendar spread and a 1/1 bull put calendar spread. The 1/1 bull put spread will turn into a 1/0 long put on feb10, and the 2/2 bear put spread turns into a 2/0 naked short on feb12 exp.

It's the usual 2/2,1/1,1/0,2/0 scenario.

Is this a practice account? With the naked short what's the margin requirements?

Semantics, but broken down they would be 2 diagonals.

Its an unfunded tier 2 margin account (spreads). I don't usually run test's in my funded tier 3 account until i'm ready to place the trade and do final analysis on how it'll fit into my portfolio. I've had plenty expensive mistakes in my early trading years.

By my eye, risk is an increase in volatility. Boosting vol by 20% causes the upside "at expiration" line to start to take on risk between 5093-5200. Being at ~13.7% IV / 16% IVP, its certainly possible for vol to increase.

Goal of the trade would be to exit before EOD 2/9

 

[JamesOptions]

If market prices were used (ie. Bid/Ask), then:
MaxLoss=$65.45 (just an estimate, depends on IV at expiration of the shorter DTEs)
MaxProfit=$580

Hmm. this is a little bit different from your PnL chart (the cyan curve), maybe due to differences in used Premiums (whether Bid/Ask was used, or rather MidPrice; it's unclear from the screenshot).

Would also be interested to learn about the analysis of other experts here.

https://optioncreator.com/st5hiks
View attachment 332622

DTE spread is 14/17/18 at time of posting for the 1/3/2 legs respectively. Lower the dte on the 4905 strike.

Also the volatilites aren't the same as what TOS was quoting, and interest rate I wish was 0...
See if that gets you the same PnL chart

 

[Quanto]

DTE spread is 14/17/18 at time of posting for the 1/3/2 legs respectively.

Oops, thx, I now see that I wrongly used DTE 16 instead of 14 in my reply above...
Now it very much looks like an arbitrage trade when all closed on the earliest expiration date (of course "if possible" to close using the desired (calcd) prices...): https://optioncreator.com/st5x416
There you can play other values for IV and IR. I just tried IV=15 with IR=5 and still got an arbitrage trade.

 

[cesfx]

Not an expert here but I do trade some short double diagonals sometime.
I wouldn't trust the payoff chart much, specially for how IV plays around weekends, on a relatively tight credit too.
I am curious about the experts views on this too.

 

[destriero]

Hi Elite trader,

to begin, please and thank you for your insights.
Long time lurker here. I would call my self an intermediate options trader.

In setting up the following analysis... I was experimenting with an unbalanced butterfly, and then started spreading out the expirations (unbalanced... double diagonal?) no clue what it's acually called.

Nevertheless, I was hoping some of the more expereinced traders here could help me wrap my head around this multi expiration, multi strike trade and how it makes money.

Thanks in advance

James

It's called the stupid. You're carrying two lot naked risk in the back which brings the req to $200K under RegT.

 

[destriero]

Not an expert here but I do trade some short double diagonals sometime.
I wouldn't trust the payoff chart much, specially for how IV plays around weekends, on a relatively tight credit too.
I am curious about the experts views on this too.

It's almost neutral vega.

 

[destriero]

It's called the stupid. You're carrying two lot naked risk in the back which brings the req to $200K under RegT.

The only reason the curve is above x is that this genius position is carrying short ATM vol into CPI. Just brilliant. Feb 13 vol is sticky due to the implied figure on CPI so the vols will rise on that tenor. Market rallies and it will be skewed as well.