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Paranoid about selling Options?
- Thread starter CashDelivery
- Start date
...twice...
Is there a quick & dirty way to estimate total portfolio theta?
Yeah, stress it. BSM, CRR, Bjerksund-Stensland, etc. Sum the thetas is a spreadsheet and keep it under 1/100.
Yeah, stress it. BSM, CRR, Bjerksund-Stensland, etc. Sum the thetas is a spreadsheet and keep it under 1/100.
Thanks, I'll look into it.
Several sources have told me that the average lifespan of naked option underwriters is about seven years. I have never found a direct conformation source to confirm or deny it, but based on decades of trading, it is unquestionably true that by far the majority of traders over-trade, over-leverage and over-risk their trading capital.
There are old traders and there are bold traders but there are no old, bold traders!
There are old traders and there are bold traders but there are no old, bold traders!
I have the same risk limit too.
Risk limits are meant to be broken but ONLY in unusual circumstances.
95percent of the time I am well under the 1perxent.
I would like to clarify the calculation and the definition in a couple of posts above.
Let's say a person has an account that is 100% options, most of them short options. The net option value today -$100,000 and the aggregate Theta (summing all the capital "T" Theta in IB's Risk Navigator) is $1400.
Is "notional/book" value as referenced in the previous posts -$100,000?
If so, this would be getting up there in risk because Theta/Notional = 1.4%, right?
I would like to clarify the calculation and the definition in a couple of posts above.
Let's say a person has an account that is 100% options, most of them short options. The net option value today -$100,000 and the aggregate Theta (summing all the capital "T" Theta in IB's Risk Navigator) is $1400.
Is "notional/book" value as referenced in the previous posts -$100,000?
If so, this would be getting up there in risk because Theta/Notional = 1.4%, right?
If your account value is 100k then you are running 1.4percent theta. I would have used the term theta to equity rather than theta to notional.
Though I also have notional to equity limits as well.
It's a rule of thumb.
If your account value is 100k then you are running 1.4percent theta. I would have used the term theta to equity rather than theta to notional.
Though I also have notional to equity limits as well.
It's a rule of thumb.
Thank you.
This is another reason I would discourage fresh college graduates from plunging right into independent trading - it's hard to pick up the rules of thumb if you're not interacting - in person - with other traders, mentors and risk mgmt staff.
OP mentioned that they are running a DELTA hedged SHORT PUT option strategy. Can someone explain how it is possible to blow up when you are delta hedged?
Assuming you are Short Puts and Short Stock, I can only see 3 ways:
- You are short Vol so if Vol very quickly goes through the roof you lose
- Large Gap ups which are far rarer than large gap downs.
- If the market falls quickly gamma causes delta to increase faster than you can rebalance the delta hedge which would cause a loss since you are longer than you would like to be but you are still short stock so I don't see how this would be a blowup
What else am I missing? What else would cause this strategy to lose?
Assuming you are Short Puts and Short Stock, I can only see 3 ways:
- You are short Vol so if Vol very quickly goes through the roof you lose
- Large Gap ups which are far rarer than large gap downs.
- If the market falls quickly gamma causes delta to increase faster than you can rebalance the delta hedge which would cause a loss since you are longer than you would like to be but you are still short stock so I don't see how this would be a blowup
What else am I missing? What else would cause this strategy to lose?
OP mentioned that they are running a DELTA hedged SHORT PUT option strategy. Can someone explain how it is possible to blow up when you are delta hedged?
What else am I missing? What else would cause this strategy to lose?
Leverage ..
Margin Requirements ...
Flash Crash ...
Thinking you can't lose ....