Questions tagged [option-strategies]
The option-strategies tag has no usage guidance.
158
questions
0
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0answers
25 views
How does Intrinsic and Time Premium factor into deep ITM options for leveraged securities
So I'm curious about the downside risk on this trade. Some backstory - I noticed the options chain for TZA had basically no volume or open interest for deep ITM calls about a week ago while also ...
2
votes
1answer
39 views
How to find the price variance of an infinitely expanding Binomial Tree?
How to find the price variance of an asset in a Binomial Tree Model? Suppose the price of the Stock is $S_t$ at time $t$ and it has a probability of $p$ that will go up $u$ times to $u \cdot S_t$ and ...
-3
votes
0answers
40 views
Payoff decomposition into call and put options [duplicate]
Hey how can I write this payoff as linear combination of calls and puts?
$$h\left(S_{T}\right)=\begin{cases}
0 & S_{T}<40\\
S_{T}-50 & S_{T}\in\left[40,60\right]\\
10 & S_{T}\in\left[60,...
1
vote
1answer
850 views
Would it be possible to combine long butterfly with long straddle, achieving profit no matter the outcome?
This has been bugging me for a while, I feel like I'm missing something.
Simply put, a long butterfly will make profit if the price at maturity does not change much, as shown below
A long straddle is ...
0
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0answers
16 views
Determine if max profit/loss on group of option legs is unlimited
Say you have a group of option legs for a symbol either for a strategy like a vertical spread or maybe an iron condor. Each with different strikes, expiration dates, etc. Without identifying the type ...
1
vote
1answer
64 views
Pairs trading on two options or option and underlying?
I have been looking into pairs trading strategies (stationary linear combination of multiple securities) for options. Multiple related options or option and underlying over small periods of time such ...
1
vote
1answer
57 views
Call spread hedge
I'm trying to understand how a call spread is used for FX hedging. The example that my book gives is when we have USD receivables in 12 months which we want to convert to EUR and we want to hedge ...
1
vote
1answer
66 views
Strategic Asset Allocation and Multi-Asset Class Option Based Tail Risk Hedging
If a Strategic Asset Allocation is defined as an asset allocation to weather all investment environments and one which should be employed in the absence of any market views, it would appear that the ...
0
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1answer
61 views
Managing/Hedging strangle with futures at strike prices
Since I am very new to options, I thought would be great to ask the opinions of the experts in this group. Please note that I will hold strangles till expiration.
The goal is to sell strangles (OTM ...
0
votes
2answers
127 views
Option seller: Why is delta hedging required if I am long/short the underlying with same number of lots as the OTM options I sold?
Situation: Sold OTM call while long the underlying. Stock did not tank, it went up too much breaching the breakeven point (strike price+premium).
If I sell 1 lot of call options and I am being long ...
0
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2answers
141 views
Why are there so many S&P 500 call options selling with strike @1000?
I am analysing option-implied RNDs and risk preferences for my masters thesis, so forgive me if I sound like a beginner in derivatives.
I use WRDS to download my historic options data. I am looking at ...
2
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0answers
193 views
How to implement an “Active Long Volatility” Strategy?
The research paper "The Allegory of the Hawk and Serpent" describes an asset allocation referred to as the "Dragon" Portfolio, which allocates 18% to "active long volatility&...
1
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0answers
54 views
Option Based Portfolio Insurance OPBI Simulation Excel
I want to simulate an example of OBPI in Excel. I can't find any example online with random figures that show how to simulate it.
I tried to understand the appendix of Perold (1995): Dynamic ...
4
votes
0answers
97 views
What put options would the Universa Tail Fund have bought?
According to this Bloomberg article, Universa was up 3,600% in March 2020, by hedging with extremely out-of-the-money puts: https://www.bloomberg.com/news/articles/2020-04-08/taleb-advised-universa-...
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1answer
82 views
How Are Option Model Assumptions Justified In Practice
I am reading this article, and I am wondering how comments like
there may be a 50/50 chance that the underlying asset price can
increase or decrease by 30 percent in one period.
are reconciled with ...
0
votes
2answers
83 views
Why are these deep in-the-money FLEX options seemingly bought at a discount?
98% of the initial reference value is .98 x 267.88 dollars, which equals 262.52 dollars. However, the market value of each call contract they purchase is 247.42 dollars.
How are they purchasing these ...
0
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1answer
45 views
Calculate borrow/loan or repo rate
I was given this question on interview and couldn't find an answer in time (it is a software developer job in a place that deals with options). Can someone explain how to do this or point me to a good ...
0
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0answers
47 views
Reference request for equity index gamma modeling
I read this article a while ago
https://www.zerohedge.com/markets/all-you-ever-wanted-know-about-gamma-op-ex-and-option-driven-equity-flows
and i've found a lot of success trading options using these ...
2
votes
1answer
60 views
Confusion about optimal choices with exotic options
With exotic options, holders usually face choices at certain times. In my understanding, the price of the option is determined by assuming the optimal choice is taken and computing the discounted ...
2
votes
1answer
67 views
Is there a sound logic for buying a portfolio of call options in the same ratio as you would buy the underlying shares?
Suppose I believe it would be profitable to build an investment portfolio by investing, say, USD 30,000 in stocks in the following ratio: 30% in shares of CompanyA, 30% in CompanyB and 40% in CompanyC....
2
votes
1answer
42 views
Calculating a Covered Call Strike with N% Probability that Shares Won't be Called Away
I'm starting to experiment with covered call strategies, and I'm trying to find the right strike price to sell for my covered calls such that I can maximize premium while being generally "...
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1answer
78 views
Optimal Covered Call Strategy [closed]
How do I compute the optimal strike / expiry / when to close or roll for a covered call strategy on a highly liquid underlying (e.g. SPY)?
2
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1answer
526 views
Simple strategies for tail risk hedging that retail investors can use
Universa Investments run by Mark Spitznagel popularized the idea of portfolio insurance (also known as tail hedge) protecting the investor against severe market declines (tail risks). By using this ...
1
vote
3answers
80 views
Equivalent combination of puts
Suppose that a certain stock is currently worth $S_0=\$61$. Consider an investor that buys
one call with a strike price equal to $K_1=\$55$, that costs $c_1=\$10$, buys another call with strike
price ...
0
votes
1answer
64 views
What are an option's “tested” and “untested” sides? [closed]
What does 2 below mean?
Adjust what once?
What do tested and untested side mean?
teamspritemini.
2 points 3 years ago
My preference is as follows:
If Naked, 3X premium as stop ...
0
votes
1answer
56 views
What does buying back a “short strike” for .05 mean?
What does the red phrase below mean?
doougle. 7 points 3 years ago.
This is one of the "not as easy as it sounds" things about options. You always hear things like "Make money if the ...
0
votes
1answer
119 views
Active vol strategy within a portfolio
Suppose I'd like to have 10 % of my portfolio allocated to "long volatility" by rolling straddles .
Obviously going all in on one trade implies significant risk of losing all the money. Does anyone ...
0
votes
1answer
232 views
How to normalise options? Normalise strike price, premium, tenors
I would like to normalise options, to being able to compare it. Make price of underlying symbol = 1, have same tenors, and same step for the strike price.
1) Use 1 as stock_price and scale ...
0
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0answers
26 views
How to visualise Option Strategies P&L with different dates in 2D?
How to visualise P&L of Option Trading Strategy with different dates in 2D?
To better understand, get intuitive feeling and think about what's going on. Especially highlighting the maximum ...
0
votes
1answer
101 views
Double Call Option
A double call option allows the holder to either exercise at time $T_{1}$ or time $T_{2}$, where $T_{2}$>$T_{1}$. With corresponding strike prices $K_{1}$ and $K_{2}$, it can be shown that it is never ...
4
votes
1answer
103 views
How to model/price the risk of Covid-19 and other pandemics
How would you model and price the risk of Covid-19 pandemic? These large cost low probability events with very little history seems to pose a particular challenge when quantitatively modeling and ...
0
votes
1answer
37 views
Calculate 6 month- return for an investment [closed]
Assume that the price of DF stock went from a price of $104 on March 2 to 146 on April 1.
With a current stock price of 146,
Invest all of your amount 14,600 in the DF stock (buy 100 shares)
...
0
votes
1answer
73 views
Question about the writing a call option on an existing portfolio of stocks [closed]
My question is Please discuss about the following statement
“ the advantages and disadvantages of writing a call option on an existing portfolio of stocks”
Note that
I read an article nearly ...
2
votes
2answers
192 views
Books on options trading with a practical bent?
just curious to see if anyone here has come across a book or books on options trading with the practitioner in mind? My lecture slides for instance, go through black scholes and the ins and outs of ...
3
votes
3answers
323 views
Are there any books/articles on how to use options to be long volatility (implied or realized)? [duplicate]
Given the market turmoil of late I have become fixated with this idea of using options to be long volatility (realised and implied). However, I dont know where to start, what to read, who to follow ...
2
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0answers
98 views
Are there trades that long gamma (convexity) and short volatility at the same time?
Likewise, are there trades that short gamma and long volatility at the same time?
Under fixed income context, are there trades that short convexity and long volatility at the same time?
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0answers
79 views
How to price a put option on a multi-asset fund? Confused by risk-neutral pricing implicaton on real world
The fund has super track record with stable vol. The chance for this Put to pay out is very low in real world, but a B/S risk-neutral pricing would give a very high cost.
I am struggling with the ...
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0answers
37 views
Selecting strike prices for put-writing strategy based on Z-scores
I'm trying to replicate the put-writing strategy of Jurek and Stafford from 2015 (The Cost of Capital for Alternative Investments, Jrl. Fin. SSRN). Their strategy writes index put options on the SP500,...
0
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1answer
63 views
Is it possible to use options to increase the yield of a dividend paying stock?
I was wondering if it is possible to use call options (selling call options) to increase the yield of a dividend-paying stock (that I already own) by 1-2 percent per year?
What are the cons of this ...
1
vote
1answer
92 views
Hedging delta when gamma is positive
If I have an aggregate position with a positive gamma, should I still be delta neutral? I feel like I'm giving up the positive benefits of being gamma positive because I'm killing my delta constantly.
2
votes
1answer
413 views
Effective gamma/vega hedging
I want an options position where I can short some options to pocket the premiums and benefit from the time decay. I also want to be vega and gamma neutral.
Is there an established way to find which ...
0
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0answers
167 views
construction of 25 delta butterfly
Could anyone explain why the 25-delta butterfly strategy is constructed by 0.5*(25-delta call + 25-delta put) - ATM straddle?
Especially, what the term "25-delta" represents in "25-delta butterfly ...
0
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1answer
42 views
Are the price of vanilla bull/bear spread constructed by calls and puts same?
We know that both bull and bear can be constructed by either two calls or two puts. Say if given two strikes, will price of bull call equal to price of bull put?
2
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0answers
63 views
Banks' use of written interest rate options
I study US commercial banks data. I look at the notional amounts of their different OTC interest rate derivatives for the recent years. When I look at non-dealer banks (i.e. end-users), I find that ...
1
vote
1answer
667 views
How do we calculate option payoff before expiration?
I am trying to simulate a bull spread option
and I have used an online tutorial to calculate payoff at expiry but I am having difficulty simulating the payoff ...
0
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1answer
59 views
Really simple question regarding options. (Amateur level) [closed]
I'm just starting to educate myself on trading and financial instruments and I have what to me seems like a somewhat stupid question but I'd like to pose it nontheless.
If I have an option to sell ...
1
vote
0answers
40 views
Wheres is this method/notation of option portfolio payoff design from?
The "desired position" in the image is a set of slopes $(0,1,-1,0)$, and a set of strike prices between these slopes $\mathbf{K}=(98,100,102)$.
The payoff is then designed by finding the positions $...
0
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2answers
117 views
Transaction costs in option market
The transaction costs in option market could be quite large. The bid ask spread of a SP500 firm could be around 15% of the mid-quote when I check the data. Since I do not have data on transaction ...
2
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0answers
84 views
sharp ratio/sortino ratio for options portfolio
I am thinking that the sharp ratio is not a valid performance metric for a long/short options book, because options are inherently nonlinear and the standard deviation simply cannot correctly capture ...
0
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0answers
226 views
Understanding delta based strike selection in an Iron Condor
I am reading a small book on the proper use of Iron Condors (link). I do not use these strategies as I have had a very hard time being profitable on them. This book mentions some strategies to ...
