Questions tagged [option-strategies]
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205 questions
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Capped Option Value
I am trying to understand intuitively how to price the following:
Suppose I have a call option today that is worth fair value $V_0$.
At any time, you can sell the option at $V_o$, in part or in whole.
...
- 101
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rolling a call up when the underlying goes up and then reverse course
Is it always true that for $S<S'$ and $K<K'$,
$$
C(S,K') + C(S',K) - C(S',K') - C(S,K) > 0.
$$
Here $C(S,K)=C(S,K; r,q,\sigma,T-t)$ is the BSM call price, assuming the other 4 parameters are ...
- 121
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Scaling an Options Trade: How Much Risk is Too Much?
I'm considering an Iron Butterfly trade (+105P, -130P, -130C, +155C), which has a net credit. Based on max loss calculations at expiration, if held to expiration, I ...
- 143
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How are popular option strategies and combinations now?
In his monograph, Hull refers to the article
Chaput J. S., Ederington L. H. Option Spread and Combination Trading // Journal of Derivatives. — 2003. — Vol. 10, no. 4. — P. 70–88. that provides ...
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How do i calculate breakeven black scholes volatility for 12 monthly option to hedge a yearly option?
If I own a 1 year call option of 30 black scholes implied vol and i want to hedge it by periodically selling 12 monthly option of same strike, how can i calculate minimum vol needed on monthly option ...
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1
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303
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P/L of a position described in terms of Up-Gamma and Down-Gamma
I can't visualize the profit/loss of a position described in terms of its Up-Gamma and Down-Gamma. The question arise from pag. 193 of Dynamic Hedging by Taleb.
How would you describe a position that ...
- 455
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383
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P/L table for a delta hedged position
I am trying to replicate the table at pag. 119 of Dynamic Hedging by N. Taleb with no success. In the example called "A misleading delta" an operator has the following position:
long \$1 ...
- 455
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PnL of a delta-hedged straddle
On Twitter, this question has been making the rounds:
If you sold a 30 vol for a one year out at the money straddle, have access to free, perfect, and continuous delta hedging, and stock realizes a ...
- 11
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287
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Constructing payoff with options
Suppose that COMPANY A has issued a special bond that does not pay any coupons. At maturity T, the bondholder receives the principal (face value) equal to 1,000 plus an additional ...
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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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159
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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 ...
- 111
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54
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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 ...
- 11
2
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1
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922
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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 ...
- 201
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51
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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 ...
- 121
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110
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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 ...
- 787
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716
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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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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 ...
2
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114
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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!
- 142
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143
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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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2k
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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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285
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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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262
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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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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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348
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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 ...
- 141
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118
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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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