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Options Question: Max Risk
- Thread starter CPTrader
- Start date
Quote from spindr0:
OK, expiring options that are OTM cost you a nickel (maybe even a penny or two) if you buy them back at expiration. So they're almost zero at expiration. LOL.
It wasn't LOL for developer17. And it is something to keep an eye out when holding long calls even if it's part of a "Call Debt Spread" and the books tell you max loss is what you paid for it. There could be a nasty surprise the following Monday after expiration.
Quote from spindr0:
OK, expiring options that are OTM cost you a nickel (maybe even a penny or two) if you buy them back at expiration. So they're almost zero at expiration. LOL.
I just noticed a typo....the calls are not bought back to close the position. They are SOLD to close the position.
Was your question aimed at simple verticals,or more complex time spreads??
Quote from CPTrader:
A basic question: If in an option spread position is constructed at a debit, i.e. you outlay premium to put on the spread, is your maximum risk always limited to the premiuum paid/ i.e. the initial debit?
Quote from CPTrader:
My question is aimed at same-month iron condors done in a ratio to achieve near neutrality in the gamma/vega/theta greeks.
Thanks.
The obvious way to determine your risk is, as it has been pointed out, just plug the trade into an option analyzer, but you can also do it by hand. Any position can be broken down into component positions, e.g. a normal iron condor is a call vertical and a put vertical, or a straddle and a strangle. So by breaking down your ratioed iron condor position you can see where the risk is.
Quote from CPTrader:
Thanks to all for sharing, please keep the insights coming.
Quick question - when using an option analyzer/calculator, where do I get my volatility data from or do I just use the clsing price to calculate the implied vol and use this implied vol for my analysis going forward?
Just use market prices.