The Beauty of Options - Portfolio Insurance at a Discount

Sweet Bobby said:
Another month in the books. I had 5 longs expiring today, so I took a total loss on those of $522.60. This is totally expected since these were the very first longs I bought back on April 8, 2020.

Because the market was up big today, it was also a great day to buy 10 additional puts. Total investment on those long 10 puts was $1,018.20. I now have 57 short /ES puts, and 135 long puts. My total investment in the hedge is $2,624.46.

Here's the risk graph of the portfolio with the current greeks.

View attachment 232083

Check out that massive $371 daily theta burn! Ouch! And the account is negative deltas. Up day today, must have really hurt, huh? Well, let's take a look at how the account performed today.

View attachment 232084

Huh? Negative delta, big negative theta. Oh, but wait. The account is positive Vega! That must be the answer. With positive Vega in the account, that means that my account goes up as volatility increases. Volatility must have increased today to lift my account.

View attachment 232085

What the hell? VIX was down, but my account still increased. The answer must lie in the nonlinear nature of theta decay, right? It will probably all come out by the end of the week and I will be down like $1,500 before the week ends. That theta better hurry and come out, since the portfolio is up $1,261.04 for the week!
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SweetBobby, if ES price moves up tomorrow, so that you cannot short the next cycle puts (at 50 strike points higher), for $3 or better, what will happen? Would you for example sell at 100 strike points above the long puts costing $1,018.20?

Isn't it safer to put the entire diagonal at once? or the difference is usually negligible? Thanks for sharing
 
shh said:
SweetBobby, if ES price moves up tomorrow, so that you cannot short the next cycle puts (at 50 strike points higher), for $3 or better, what will happen? Would you for example sell at 100 strike points above the long puts costing $1,018.20? Thanks for sharing
More...
Great question. At this point, I will not sell any additional puts until my replacement long’s get filled at $1.35. I have about five working orders to fill a number of longs. I really benefit from an upward or sideways market, while being fully protected if a crash occurs.
 
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Sweet Bobby said:
Another month in the books. I had 5 longs expiring today, so I took a total loss on those of $522.60. This is totally expected since these were the very first longs I bought back on April 8, 2020.

Because the market was up big today, it was also a great day to buy 10 additional puts. Total investment on those long 10 puts was $1,018.20. I now have 57 short /ES puts, and 135 long puts. My total investment in the hedge is $2,624.46.

Here's the risk graph of the portfolio with the current greeks.

View attachment 232083

Check out that massive $371 daily theta burn! Ouch! And the account is negative deltas. Up day today, must have really hurt, huh? Well, let's take a look at how the account performed today.

View attachment 232084

Huh? Negative delta, big negative theta. Oh, but wait. The account is positive Vega! That must be the answer. With positive Vega in the account, that means that my account goes up as volatility increases. Volatility must have increased today to lift my account.

View attachment 232085

What the hell? VIX was down, but my account still increased. The answer must lie in the nonlinear nature of theta decay, right? It will probably all come out by the end of the week and I will be down like $1,500 before the week ends. That theta better hurry and come out, since the portfolio is up $1,261.04 for the week!
More...
Question for you:

Have you ever tried, analyzed or backtested zero cost portfolio insurance, i.e., let the short and long premium net to zero?

I ran some analysis over the weekend using various strikes, ratios, expirations on historical SPY... o_O
 
ironchef said:
Question for you:

Have you ever tried, analyzed or backtested zero cost portfolio insurance, i.e., let the short and long premium net to zero?

I ran some analysis over the weekend using various strikes, ratios, expirations on historical SPY... o_O
More...
I have not. What did you find?
 
Are you talking about zero cost collars?

ironchef said:
Question for you:

Have you ever tried, analyzed or backtested zero cost portfolio insurance, i.e., let the short and long premium net to zero?

I ran some analysis over the weekend using various strikes, ratios, expirations on historical SPY... o_O
More...
 
"zero cost collarrrr"

Umm, let me guess... you have to short 30D calls and buy 20D puts.

It's a synthetic bull vertical. No shit, rly. So WTF bother with shares?
 
destriero said:
"zero cost collarrrr"

Umm, let me guess... you have to short 30D calls and buy 20D puts.

It's a synthetic bull vertical. No shit, rly. So WTF bother with shares?
More...
He partially paid for his long puts with shorter duration puts. What if either he sells more puts to balance out the cost of the longs or goes lower long put strike so that the costs net out to zero?

Like a free lunch. :D
 
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