FXI
- Thread starter rmorse
- Start date
Well, I model it, although IV is an input that is hard to predict. So no, I don't accept delta as an approximation of probability. Not that it's all that far off, but I don't use it.
How would your method ever predict a negative payout? $ difference is positive, delta difference is positive. My model shows that many (most) spreads have negative expectations.
I must be misunderstanding your calc. I could sell DOTM and buy DITM, realizing a huge strike difference and nearly 100% delta difference. Explain more, please?
How would your method ever predict a negative payout? $ difference is positive, delta difference is positive. My model shows that many (most) spreads have negative expectations.
I must be misunderstanding your calc. I could sell DOTM and buy DITM, realizing a huge strike difference and nearly 100% delta difference. Explain more, please?
Is that a typo? The ask must have been $0.44 or $0.45, not $0.54. If I am mistaken there is no need to go off on a tangent.
I don't see any profit in opening any sort of DITM spread. Perhaps you might get a few pennies once in a while, but most times they will end up negative.
Not a typo. Take the similar put spread available now:
FXI @ $42.76
Jul15 $45.50 put B/A = $2.97/$3.10
Jul15 $46.00 put B/A = $3.35/$3.55
Best case: $0.25 (buy $3.35, sell $3.10)
Worst case: $0.58 (buy $3.55, sell $2.97)
I bet I could hit within a penny of the middle ($0.415). Not always, but if I can't, I don't take the trade. (Of course, I also evaluate expectation, and I only buy spreads that have significant positive expectation.)
What you "see" doesn't matter. The spread referenced above should make $0.085 most of the time. That's not "a few pennies once in a while". You really need to consider the odds of success or failure and the implications thereof. For the spread I just referenced, my model says:
Expire below $45.50 = 0.9115
Expire above $46.00 = 0.0565
Expire in between = 0.032
Expectation = (0.9115*8.50) - (0.032*16.50) - (0.0565*41.50) = $4.87
THAT'S what's important.
I thought your strategy involved both ITM options. With a a combination of ITM long call and OTM short call, you are only a few deltas away from a covered call. As such, a simple short naked put with your desired delta exposure may suffice.
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Yes. You have a unique ability to miss the point. Look at the fucking math.
Yes, my short leg is ITM as is (of course) the long leg. I was just trying to grok your estimation of payout. Can you explain in more detail? How would your calculation lead to a negative expectation in any scenario?