Options Spread trade

It's an app I made myself a few years ago.


I know it's hard to see, but this is what is showing:


With Volatility set to 10.0 and referenced to March Expiry (I'm just using 3rd Friday stock expirations)

1. Underlying Range of +/- 10%
2. IV Range (at Expiry) of +/- 10% (red: +10% chng, blue: -10% chng)
3. Risk Graph at weekly intervals (black lines)
4. Vertical lines are 1st (red) and 2cnd (purp) Std Dev of Underlying
5. Probability Curve (bell-shaped green line)

I'm getting a position delta at initiation of +$112

And a position Theta of -$20/day
 
Very impressive!

Nice clean look.

Here's something I put together.
However, I'm not a programmer so it's just a spread sheet.

I have to make a few small modification to handle options on futures.
 

Attachments

Thanks!

Hey, your Excel sheet looks pretty cool.

I can log a few thousand trades and show portfolio curves in Excel, but that's about it. Definitely not an Excel wiz!

Good trading to all. :cool:
 
I see, I see.

Hmmm, thanks for the input...I need to rethink the strategy. But bringing in the 1520 call to say 1500 imo is too risky...I think there is massive resistance at ES 1550 (from the perspective of the MAR ES futs), but from here (1460) to there (< 1550) is well greased for a move. Only thing that can spook the markets for more than a week is real action by the FED, 1/4 point rate hike, not continous blabbering about inflation worries.

Amazing how accurate the bond market was/is. I completely ignored what it was telling me. I refused to believe it, and instead believed the rhetoric coming out of the FED. "Don't fight the FED" should be rephrased, "Don't fight the FED, unless the bond market is on your side."

I just think that everyone is selling vega like crazy, and when that is wrong, it is going to be really wrong. If republicans win the presidency again, I have no idea what can stop ES from 1800 in two short years max. Imagine if republicans won the white house again, and real estate picked up again? ES 2500? DOW 20000? VIX may go to 5.

nitro :(
Quote from rallymode:

Suspect is putting it mildly. You need to model each strike independently to gain a proper picture of what you should expect in terms of $vega PnL. Your ATM call straddle will become an OTM call straddle as we sell off. Look at the OTM straddle and compare vols. You need to balance the skew against the increase in strip vols(VIX) to get an accurate $vega picture. I am not saying you won't net gain on vols, but you need a strip vols increase that will overwhelm the -skew.

As you outlined in your original post, the short calls are ticking at 782bps. I would avoid selling those whether to finance a straddle or as a stand alone position.
More...
 
Nitro your right when you say the ES can go to 1800 in two short years...it can also go to 1100. Your trade however is for a few months, and you said you wanted to do a volatility trade. If that is the case then why confuse yourself and your trade with possible directional projections so far out in time?
 
Quote from RichardRimes:

Nitro your right when you say the ES can go to 1800 in two short years...it can also go to 1100. Your trade however is for a few months, and you said you wanted to do a volatility trade. If that is the case then why confuse yourself and your trade with possible directional projections so far out in time?
More...
You are right. I was just pointing out, the obvious I guess, that bringing in the front month short call to get more juice is not a no brainer. For the time frame given, it is probably ok. I am just a bit neurotic these days, and believe that the market is actually well ahead of everyone, and that these long vol trades are no good in practice.

Unless Bernanke or OBL decide otherwise, long vol trades, while they look good on paper because vol is on firesale, are probably dead money waiting to get eaten up by theta, in this environment of record corporate profits.

The market is telling us loud and clear to sell vol, even though there is no real $$$ to be gotten for it given the risk taken.

But your point is well taken.


nitro
 
Is it my imagination, or is this spread (using simmilar contracts today) considerably harder to keep delta/gamma neutral with only 1 short ES?

The implied vols have widened out between front and back months. The difference in IVs of the spread in the first post was less than 4, about 3.8. Now the difference is about 5.

Summer is probably a bad time to sell vol.

:confused: nitro :confused:
 
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