Questions tagged [option-strategies]
The option-strategies tag has no usage guidance.
190
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Why a Short Iron condor payoff is showing always positive
I created a Short Iron condor on Nifty 50 index European option for 9 Nov weekly expiry on 1 Nov morning 10.30 AM (live market). It's payoff is showing always positive curve. Why ? However when same ...
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A naive approach to choose a strike
The idea is to choose a strike base on the premium and historical data to have maximum profit.
For example a selling a (European) call.
$$Profit = Premium_K - (S(t) -K)^+$$
Replacing $(S(t) -K)^+$ for ...
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What would be the practitioner way of hedging jump risks?
I have developed a keen interest in volatility strategies and have implemented various approaches based on practitioner delta. This delta is meticulously calibrated using a no-arbitrage implied ...
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Arbitrage between gamma and delta on smaller timescale in options selling
I have observed that sometimes (mostly for OTM options) near expiration, an increase in option price cannot be fully explained by delta and theta(given volatility is constant). The gamma spiked the ...
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133
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At what threshold on delta percentage should I hedge my option portfolio?
I am able to identify and build an option portfolio with long/short call/put options across different strikes and expiries such that the gamma is positive and cost is negative. Upon inception I hedge ...
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Accounting of a stock put option for Monthly % Changes
am looking to backtest a strategy of systemic put buying on an equity index (e.g SPX Index) so say a strategy of buying 1Y 90% SPX Puts rolled 1 day prior to expiry.
As opposed to only calculating the ...
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83
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Options strategy expiration probability
Big picture
For any options strategy, for any segment between zero profit (breakeven) points, I want to calculate probabilities of the underlying instrument price will be within a segment at ...
- 121
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274
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Optimal delta-hedging frequency when gamma scalping
Is there a practical way to calculate a delta threshold for rebalancing when gamma scalping?
I know it does not effect expected P&L, but what about optimizing for P&L sharpe ratio after ...
- 171
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92
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Input/References on Generating Exit Signals for Positions that Profit Very Highly from Extreme and "Unpredictable" Events?
For focus, let us restrict the scope of this to vanilla options-based positions/strategies.
In a lot of the accounts that I've seen of those that engage in this sort of investment/trading strategy (...
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question on risk reversal P/L example in Euan Sinclair's book 'positional option trading'
I am reading Euan's book, ‘positional option trading’ and have a question about risk reversal P/L example. Here is description 'Consider a 1-month risk reversal on a \$100 stock. The 20-delta put (91 ...
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Is there a strategy to increase the granularity of a deep in the money options contract?
My aim to get as close as possible to a "mini" deep in the money options contract. But mini contracts aren't generally available and buying regular 100 packs of high priced stocks is ...
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In the CRR model, describe the strategy replicating the payoff $X=(S_T-K)^{ +} +a(K-S_{T-2})^{+ }$ for $a \neq 0$ [closed]
In the CRR model, describe the strategy replicating the payoff
$X=(S_T-K)^{ +} +a(K-S_{T-2})^{+ }$ for $a \neq 0$
$X$ consists of two parts:
European call option with strike price $K$ and expiration ...
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66
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Trading options - risk adjusted return
I have often wondered what kind of risk restrictions do traders of options in Hedge funds have but have not managed to find any information on this matter. I presume there must be some kind of measure ...
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What is the expected return of a strangle given it's IV and realized volatility at expiration?
Assuming we have a correct final value of realized volatility, how would one calculate the expected return of a strangle?
Given that a strangle is a bet on volatility it seems that it should be ...
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Reverse convertible coupon determination
I had a question about the coupon level determination for a simple reverse convertible product.
Assuming risk free rates are 4% while premium on short put is 5%, typical text-books would then quote ...
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266
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How to simulate a delta hedged option strategy
I'd like to do a montecarlo simulation of a $\Delta$ hedged strategy (long OTM call) to see how the PnL distributes on cases like:
$\sigma_{bought} < \sigma_{realized}$
$\sigma_{bought} > \...
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206
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$\mathbb{Q}$ measure and $\mathbb{P}$ measure, trading strategy
I just want to be sure if my thinking is correct and does not have any flaws.
Let's define stock as a process $S$ (see the picture below) with real-world measure $\mathbb{P}$, where $p=0.9$ and Bonds ...
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226
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I can’t understand why the premium of two butterflies with same strike but different broadness are approximately the same
Consider the following premiums of calls option with different strikes.
C90 = 57.35
C95 = 52.55
C100 = 47.3
C105 = 42.9
C110 = 38.25
In this case, the butterfly 90-100-110 cost 1 and the 95-100-105 ...
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136
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Why should delta-neutral backspread always result in credit?
Natenberg mentions in chapter titled "Volatility Spreads" :
under the assumptions of a traditional theoretical pricing model, a delta-neutral ratio spread
where more options are purchased ...
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What are some good books to get started with option theory? [duplicate]
Recently graduated in econometrics but starting to realize my knowledge is limited. Any and all tips are welcome!
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What is gamma to do with realized volatility?
I keep hearing that gamma is a bet on realized volatility. That is, if we are long gamma then we need higher realized volatility to come in the future in order to make a profit.
from other source:
If ...
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113
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Risk-managing vanilla books (sell-side)
I am interested in learning more about how traders risk-manage books of vanilla options. I presume there should be a fairly standard list of facts. For the moment, the area of interest is FX, as ...
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348
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Using delta as probability of an option expiring in the money
I understand that delta can be seen as a probability proxy for an option expiring in the money, as well as deltas for call options ranging from 0 to 1 and deltas for put options ranging from 0 to -1.
...
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957
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What is a skew swap?
I'm watching a video where hedge fund manager Cem Karsan describes the basics of his strategy as a "skew swap". I understand that he's buying/selling index options at different maturities to ...
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1k
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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 ...
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143
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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 ...
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2
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231
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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 ...
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173
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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 ...
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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 ...
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75
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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 ...
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435
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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 ...
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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 ...
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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 &...
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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 ...
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342
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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115
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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 ...
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357
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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&...
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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 ...
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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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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 ...
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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 ...
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