Questions tagged [option-strategies]
The option-strategies tag has no usage guidance.
168
questions
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47 views
Delta hedge swaption straddle
Let's say you decide to buy a 2Y10Y ATM swaption straddle (i.e. buy 10 million ATM payer swaption and buy 10 million ATM receiver swaption).
In order to delta hedge, I believe you would short the ...
-1
votes
1answer
59 views
Why does bull call spread shows higher payoff than bull put spread?
I am trying to compare bull call spread and bull put spread for equity index option. For the options where the put call parity holds, I am getting a different payoff for bull call spread and bull put ...
0
votes
2answers
88 views
Best/worst case scenario after selling OTM call option
You decide to sell a European call option that is currently 10% OTM (for example the strike = 100 and the current price = 90). You have to delta hedge to keep the delta of your position at 0.
What is ...
3
votes
0answers
75 views
How to backtest multilegged options strategies?
I have got historical data for the index options. Now I am looking at backtesting some of my strategies with this historical data. I would like to backtest strategies like selling a straddle and ...
4
votes
0answers
111 views
Finding optimal calendar spreads and diagonals
I am looking for some pointers on risk/return profiles of calendar spreads and diagonals with different strikes and expiration dates, preferably based on historical backtests with SPY options.
Please ...
0
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1answer
60 views
On P and L of backspread
Does anyone know how the P and L on put backspread changes as a function of implied volatility and longer expiration?
One wants as much gamma as possible as far as I understand, in turn being related ...
2
votes
0answers
58 views
Breeden and Litzenberger formula for pricing state-contingent claims
I am reading these two papers Prices of State-Contingent Claims Implicit in Option Prices and Implied Risk-Neutral Distribution: A Comparison of Estimation Methods. I understand how we get the formula ...
1
vote
0answers
75 views
Valuing Option Credit Spreads
I'm trying to come up with a metric to value and compare spreads. One way that I was doing this was to compute the Expected Value of the spread.
To calculate the expected value I used the following ...
0
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0answers
44 views
Options probability of profit
I’m trying to determine if there’s a simple way to determine the probability of profit of options and by extension different options strategies.
The closest I’ve found to “plug and chug” type formulas ...
1
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2answers
196 views
What is this option strategy called?
I have been playing with option strategies in order to understand the advantages/drawbacks of all of them.
Then I realized this type of strategy is not so advertised in the web and cannot find any &...
1
vote
0answers
46 views
What's a sensible way to measure correlation in the volatility surface?
Lets say I construct a parametrisation of the volatility surface that lets me infer dynamics i.e correlation between strike vol.
Is computing the sample correlation (after controlling for spot-vol ...
0
votes
1answer
122 views
Barrier Reverse Convertible
I am a finance student and during my free time I try to understand more financial products.
Today I have found a term sheet for a specific type of barrier reverse convertible but I couldn't understand ...
0
votes
1answer
79 views
What kind of stock's prices are most affected by option trading?
Option trading translates into stock trading via market maker hedging. For instance, if I buy a call option, the market maker will have to buy the stock to delta hedge. Thus, this should translate ...
0
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0answers
35 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
51 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 ...
1
vote
1answer
884 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
votes
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 ...
0
votes
1answer
76 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
115 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 ...
0
votes
1answer
77 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
votes
1answer
279 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
404 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
votes
2answers
153 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 ...
3
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0answers
732 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
vote
0answers
84 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
136 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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votes
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
86 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
votes
1answer
59 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 ...
2
votes
1answer
68 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
69 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
61 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
100 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)?
3
votes
1answer
816 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
81 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
130 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
62 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
126 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
599 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
votes
1answer
122 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
107 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
41 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
79 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
325 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
391 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
votes
0answers
156 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?
1
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0answers
81 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 ...
1
vote
0answers
44 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
votes
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
96 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.
