10

Your butterfly is short a straddle and long a strangle. If you add a long straddle with the same strike/notional you are now just long a strangle. The payoff for a strangle is zero if the terminal price is between the two strikes and positive otherwise. Once you take the premium into account you will see that you make a loss if the terminal price is between (...


4

Providing my 2 cents here, listing 3 free methods below: CBOE's method: No code here, just a "white paper", thus you can code it with whatever language you desire. I kinda like this the most (disregarding how far off this could be from the reality). https://www.cboe.com/publish/micropdf/CBOE-SP500-Iron-Condor-CNDR-Methodology-Paper.pdf ...


3

Delta is an instantaneous measure of risk for the stock movement. @dm63 basically describes a scenario where the gamma has hurt you because you have not rebalanced your delta hedge to account for a large move in the stock. Rebalancing your hedge is where the art of risk management comes in--how frequently should you rebalance?; how do you handle gap risk?; ...


3

Let’s say you have sold the 100 call 10% OTM and you have a delta of 0.4 ie you bought 40% stock at 90 against the call. I think the worst scenario is the stock skyrockets overnight. Say it goes to 200. Then you are down about 100 on the call and up 0.4*90= 36 on the stock. And if it goes even higher, the loss is unlimited. The best case is that the stock ...


3

I provide a general algorithm and an implementation in R to solve those kinds of problems in general: Financial Engineering: Static Replication of any Payoff Function. For your example: payoff <- data.frame(pi = c(0, 10, 30, 40, Inf), f_pi = c(30, 50, -10, 0, Inf)) payoff ## pi f_pi ## 1 0 30 ## 2 10 50 ## 3 30 -10 ## 4 40 0 ## 5 Inf Inf ...


3

a) buy 2 deep OTM calls b) buy 2 deep OTM puts c) sell 1 OTM call d) sell 1 OTM put This is just a ratioed strangle switch. No idea if there's a name for it but it's not a new idea and I've seen it pitched.


3

Yes, and in fact this is a quoting convention in FX derivatives; for flys straddles and reversals. It is applied to Legs by often by symmetric delta, and strike-by-delta formulas is used to convert out. Keep in mind that put call parity as it relates to option type is relevant here. Reference a see: "Foreign Exchange Option Pricing: A Practitioner's ...


2

eDeltaPro is an Options Backtesting Software, specifically designed for Options traders. It has an easy-to-use user interface (no programming). Supports simple or complex multi-leg options strategies (straddles, Calendars, ratios, etc...). Has over 10 years of historical data and many symbols including Stocks, Indexes, and ETFs. You can use rolls, stop loss, ...


1

How do you define higher payoff? Could you show what you compute? Do you look at what the options cost at the moment? If you want the same payoff (graphically and expiry), you can do the two things: buy call (say ATM) and sell call (OTM) buy put (ATM) & sell Put (ITM with same strike as OTM call) Now, it is intuitive that (although same strike and ...


1

The V that you see is only at expiry (like any hockey stick) and completely independent of vol or tenor. All that matter is notional. Assuming put backspread, you sell a put with higher strike, and buy it back with lower strike(same maturity). The more you buy the steeper. Vol will only impact the position of V. The more expensive the long positions are, the ...


1

It's an iron condor combined with a long OTM strangle. It benefits from higher IV. It does not benefit from lower IV because there are more long legs than short. Oftentimes, people just make up names for combining two strategies. AFAIC, what's important is to understand the potential P&L of the strategy as well as the overall effect of time decay and ...


1

This question reminds me of, many moons ago in a galaxy far far away, the third week of every third month, when the pointyheads who think "vega" is a real word used to start talking about "pin risk" [or "the gamma hammer", if they wanted non-derivative grunts who don't think in Greeks to shut up and listen]. The punchline being ...


1

I hope that I have understood the gist of your question, if not I may try to adjust this answer. Let the time step in a binomial tree be $\Delta t \equiv \frac{T}{N}$. For $N \to \infty$, the distribution of the stock price (of any specific point in time $t>t_0$ converges to the lognormal distribution with scale parameter $\log S_0 + (r-\frac{1}{2}\sigma^...


1

I published a blog post on how to backtest options strategies with R: Backtesting Options Strategies with R In the post, I provide the fully documented R code for your own experiments. The "trick" indeed is to use the often publicly available implied volatility as a proxy for option prices. For details please consult the post.


1

You should specify the underlying product. I can think of seasonal commodities where an options calendar spread would effectively be on underlyings that are very different. In that case, "What are the factors that work solely to create losses?" could be very different than, say, risks for doing a calendar in something like EURUSD.


1

Theoretically: Veta (dVega/dTime), is almost always negative, therefore, all else equal your calendar spread will not be vega neutral, the longer dated option will have higher vega. Charm (dDelta/dTime) increases delta with the passage of time for ITM options (to +-1 depending if call/put) and decreases for OTM options (to 0), it has no effect on ATM ...


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