SPX Versus SPY

G

GregorySG9

Can somebody help to explain why I find different results on the performance graph with IB for this Butterfly Put?

upload_2019-10-9_10-33-32.png

Vs
upload_2019-10-9_10-35-34.png


Premium amounts are exactly the same: 165,000$. Margin impact is equivalent.
Max Loss should be limited to premiums i.e. 165,000$ (+ commissions) however IB is saying something different moreover different between SPX and SPY. All values are so different!
For SPX:
upload_2019-10-9_10-40-19.png


For SPY:
upload_2019-10-9_10-42-48.png


Are the data sets accurate?
Thanks for your input
 
My guesses are:
a) These IB charts and values are based on the current ask price, not the mid-price that you’d expect to pay. I actually have this issue all the time and have to adjust those values to account for the actual price I’ll pay for options/combos.

b) Margin and therefore cost of carry may be different on SPY vs SPX.
 
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Actually in both cases "MinInvest" shows exactly as the Ask price + Commissions, with the main difference being in Ask price on SPX vs SPY (#a in my previous answer). Total commission also comes to be much higher on SPY.
 
Hi Guru,

First of all, I appreciate that you took time to answer.
Regarding the cost of carrying, it is included in the option price so I am not sure what you mean.

But you're totally right about the ask price. So this butterfly put ask price is calculated by adding the 2 ask prices of the put bought and the 2 bid prices of the put sold. Therefore the spread is huge, very far indeed from the price that I wanted to pay (or mid-price).
As often, SPY has tighter spread than SPX hence the difference in the ask price here.
What you said makes total sense!

What I don't understand though is:
1) Why IB doesn't calculate performance profile based on actual premium we want to pay/sell and not a bid or ask price.
2) Min invest being the ask price + commissions as you said, then the max loss following IB logic should be equal to the min invest. It still not the case.
For SPX, Max Loss = 421,212$ vs MinInvest = 408,474$
For SPY, Max Loss = 281,850$ vs MinInvest = 277,954$
In both cases, it's a 3.11% difference. Margin of safety on an already cautious approach (worst premium you can get}?
 
GregorySG9 said:
Hi Guru,

First of all, I appreciate that you took time to answer.
Regarding the cost of carrying, it is included in the option price so I am not sure what you mean.

But you're totally right about the ask price. So this butterfly put ask price is calculated by adding the 2 ask prices of the put bought and the 2 bid prices of the put sold. Therefore the spread is huge, very far indeed from the price that I wanted to pay (or mid-price).
As often, SPY has tighter spread than SPX hence the difference in the ask price here.
What you said makes total sense!

What I don't understand though is:
1) Why IB doesn't calculate performance profile based on actual premium we want to pay/sell and not a bid or ask price.
2) Min invest being the ask price + commissions as you said, then the max loss following IB logic should be equal to the min invest. It still not the case.
For SPX, Max Loss = 421,212$ vs MinInvest = 408,474$
For SPY, Max Loss = 281,850$ vs MinInvest = 277,954$
In both cases, it's a 3.11% difference. Margin of safety on an already cautious approach (worst premium you can get}?
More...

Re: 1
I assume that IB system doesn’t want to assume/guess any specific price that you may be able to get, while treating your possible limit price as just a theoretical price that may or may not be attainable. But other brokers are able to utilize in their P&L charts the price you’d want to pay, so I consider this a problem/fault with IB system. I got used to it but there is a slight chance that IB may have (because it should) some configuration setting for this, so you could contact their support.

Re: 2
I can’t explain the additional difference(s) but I only suspect that they add some cost of carry that may include/require margin, simply because you can buy X number of positions in anything with or without using margin. Assuming you have portfolio margin, you can buy 1000 flies or 5000 flies, or 1000 flies and later buy something else - and at some point you may start buying stuff on margin if you exceed your cash - and especially when IB calculates default cost of those flies higher than they should be.
For example on a $200k account you may be able to buy $300k worth of spreads or flies, so you’d be using margin and paying interest on it. And margin requirements vary between SPY vs SPX.

Actually, I just remembered that IB may also utilize more margin than just the cost of spreads or flies, so you may pay $1 for a fly but IB’s internal margin requirement may be $1.1 or $1.25. I don’t recall details and how/when this may happen, but I remember some FB discussions where people talked about arguing with IB about this. Such things may also relate to position concentration, which is another variable that may play a role in margin use (although it shouldn’t in case of basic spreads and flies).
 
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I am used to trade futures and options on futures only. Index options work a bit differently. But now it's clear. Thanks.

Actually I believe you already explained the additional difference. 3.11% is the borrowing rate provided by IB for a 165,000$ negative cash balance according to their website.
So IB assumes the worst case here again which is: cash is entirely borrowed to pay for those options premium.
 
GregorySG9 said:
Can somebody help to explain why I find different results on the performance graph with IB for this Butterfly Put?

View attachment 210827
Vs
View attachment 210828

Premium amounts are exactly the same: 165,000$. Margin impact is equivalent.
Max Loss should be limited to premiums i.e. 165,000$ (+ commissions) however IB is saying something different moreover different between SPX and SPY. All values are so different!
For SPX:
View attachment 210829

For SPY:
View attachment 210830

Are the data sets accurate?
Thanks for your input
More...
%%
Is that a big error??
SPY is liquidity leader/tighter spread+ they have a pp ''profit probability of 0''[on your data] But on the charts[your data] ,shows about the same pp @ first glance.........................................
 
murray t turtle said:
%%
Is that a big error??
SPY is liquidity leader/tighter spread+ they have a pp ''profit probability of 0''[on your data] But on the charts[your data] ,shows about the same pp @ first glance.........................................
More...
I didn't check PP because the 0PP here is only for max gain (one specific point) which is quite meaningless.
Not sure why SPX PP is not 0 though.
I consider max loss a big error. But it's easy to correct with own assumptions. So it's not a big deal.
 
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