GOOG mock delta neutral short strangle

A

Andy_Trade

Here's the GOOG trade. I'll leave the WYNN trade in the original thread entitled: "Trade Critique"

GOOG Short Strangle Delta Neutral trade entered on 10/22/07. GOOG closed @ 650.75.

Sold 5 730 calls @ 1.70 Delta .08 = +40

Sold 5 570 puts @ 2.40 Delta -.08 = -40

Total Delta = 40 - 40 = 0 Delta.


10/23/07

GOOG gaps. closed @ 675.77.

Delta of Calls = .08 x = +40
Delta of Puts = -.07 = -35

(So of course again I'm thinking the delta of this trade is +5)

Bought back 2 730 calls @ 4.10 with delta of .08. for a realized loss of 480

This leaves us with 3 730 calls each with a delta of .08. 3 x 100 x .08 = 24 Delta

The 570 puts delta is -35.

24 - 35 = -11 delta. (or so I thought)

To offset the negative delta, sold 1 590 put @ 1.50 with a delta of -.12.
-11 + 12 = +1 (but it's really +23)

Position:

3 730 calls 1.70 - 4.40 = -810 loss.
5 570 puts @ 2.40 - .75 = 825 gain.
1 590 put @ 1.50 - 155 = -5 loss.

-810 + 825 - 5 = +10 unrealized gain.

Realized loss of 480 on the 2 730 calls.


10/24/07

Price of sold options now:

3 730 calls Delta .16 = +48
5 570 puts Delta -.03 = -15
1 590 put Delta -.07 = -7

I think delta is +27 when it's actually -26

Because of this I sold 2 740 calls @ 2.60 with Delta of .13 to "neutralize". -26

I think my delta is now +1 when it's really -52.


10/25/07

GOOG closed @ 668.51

So now that I know I'm really -52 delta, I can adjust properly.

I sold 4 620 puts @ 3.60 with delta of -.13 to neutralize.

-52 + 52 = 0

Position now consists of the following:

Sold 3 730 Calls @ 1.70 - 3.00 = -390
Sold 2 740 Calls @ 2.60 - 2.30 = 60
Sold 5 570 Puts @ 2.40 - .65 = 875
Sold 1 590 Put @ 1.50 - 1.10 = 40
Sold 4 620 Puts @ 3.60 - 3.30 = 120

705 unrealized gain.

480 realized loss


10/26/07

GOOG closed @ 674.60.

Deltas:

3 730 Calls .14 = 42
2 740 Calls .11 = 22
5 570 Puts -.03 = -15
1 590 Put -.05 = -5
4 620 Puts -.14 = -56

Delta for trade is +12.

Decided to adjust.

Bought back the 590 @ .73 for a 77 realized gain.

Bought back 2 570 @ .40 for a 400 realized gain.

477 total realized gain.


Position now consists of the following:

3 730 calls @ 1.70 - 2.45 = -225
2 740 calls @ 2.60 - 1.70 = +180
3 570 puts @ 2.40 - .40 = +600
4 620 puts @ 3.60 - 2.05 = +620

+1,175 unrealized gain. 480 realized loss, 477 realized gain.
 
Quote from Andy_Trade:


This leaves us with 3 730 calls each with a delta of .08. 3 x 100 x .08 = 24 Delta

The 570 puts delta is -35.

24 - 35 = -11 delta. (or so I thought)

To offset the negative delta, sold 1 590 put @ 1.50 with a delta of -.12.
-11 + 12 = +1 (but it's really +23)

Position:

3 730 calls 1.70 - 4.40 = -810 loss.
5 570 puts @ 2.40 - .75 = 825 gain.
1 590 put @ 1.50 - 155 = -5 loss.
More...

First off, the errors.
Your position is short every option. So it might be easier to think of your position as

-3 730 calls (8d)
-5 570 puts (-7d)
-1 590 put (-12d)

: So, your "real" delta position is as follows (assuming your d calcs are correct)

-3x8+(-5x-7)+(-1x-12) = -24+35+12=23d (not +1d)

10/24/07

Price of sold options now:

3 730 calls Delta .16 = +48
5 570 puts Delta -.03 = -15
1 590 put Delta -.07 = -7

I think delta is +27 when it's actually -26

Because of this I sold 2 740 calls @ 2.60 with Delta of .13 to "neutralize". -26

I think my delta is now +1 when it's really -52.
More...

Same errors, i think you realize this.


Position now consists of the following:

3 730 calls @ 1.70 - 2.45 = -225
2 740 calls @ 2.60 - 1.70 = +180
3 570 puts @ 2.40 - .40 = +600
4 620 puts @ 3.60 - 2.05 = +620
More...

You are short all of these options, but I am unsure you realize all of the risks.

You are short gamma and vega (assume delta neutral) If there are any big moves in the future, you will most likely be hurt and your p&l will quickly turn negative. And if you continue to sell more and more options, your risks will continue to get larger.

I think in GOOG, you will be fine for now. But please, understand your risks a lot better.
 
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