tag:blogger.com,1999:blog-973587304515257848.post825622502703380379..comments2024-02-11T00:12:56.047-08:00Comments on IN THE MONEY TRADES: Low Volatility in crude...I like the strangle!Anonymoushttp://www.blogger.com/profile/02083421527404780093noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-973587304515257848.post-61770358381809201122010-12-30T21:39:41.778-08:002010-12-30T21:39:41.778-08:00Taking a learning lesson with you on a scratch ins...Taking a learning lesson with you on a scratch instead of a loss is a blessing. Most of my learning experiences cost me quite a bit.Jason Haashttps://www.blogger.com/profile/08138027111150684908noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-47932584989364224102010-12-30T14:38:14.552-08:002010-12-30T14:38:14.552-08:00After further analysis I was wrong and here is why...After further analysis I was wrong and here is why:<br /><br />MY MISTAKE: I was looking at the % move of the OVX index and not the actual net change, it is the net change that represents the move in implied vol. So a move from 27 to 29 would be 2 full points, although the percentage move would be much greater. At the time I closed out my position the OVX was up 2% but the net change was only 0.50-0.60 (this is the number I should had been focusing on. Implied vol at this point had only gone up by about ½ of 1% in implied vol points).<br /><br />Now according to the Greeks at initiation of this trade I should had made $2,700 for every 1% increase in Vol, a loss of $710/day in theta, and a loss of $310 per 1 dollar down move. So if you take these factors into consideration this is what the strangle should had been worth when I closed it out with vol up 0.50% and crude down $1 and 1 day of theta burn:<br /><br />(2,700 * .50) – 710 -310 = $330 gain --> When I closed this position out it was 6.65 x 6.80, I went 6.70 just to increase probability of getting filled, but the mark or theoretical price was at 6.725 which would had represented a $250 gain if I tried to squeeze it out of the market makers. So in all reality it was only $50 off what the analyze tab had predicted.<br /><br />Now I kept an eye on this after the DOE’s came out and the Oil Volatility index continued to rise. At one point in the day the vol index was up 7.2% or 2.00 implied volatility points, at this point the analyze tab was showing a gain of $3,000. Now lets confirm what it should had been based on the Greeks at initiation:<br /><br />(2,700 * 2.00) -710 –(310 * 2) = $4,070 --> So in this estimate it was off about $1,000 vs what the analyze tab was showing as the profit based on my original entry of 6.70. But I think this could be explained as the market makers may have begun to price out the weekends theta.<br /><br />All in all I realized that I was looking at the OVX index wrong and for the most part the analyze tab was actually pretty accurate. I was quick to jump to conclusions, but it was worth the learning experience and I got out of it for a scratch trade. It also forced me to think through what went wrong.Anonymoushttps://www.blogger.com/profile/02083421527404780093noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-12952155101402619662010-12-30T10:29:25.573-08:002010-12-30T10:29:25.573-08:00Yes theorectically this should had worked. I came ...Yes theorectically this should had worked. I came in at 6:30 am this morning with crude down over $1/bbl and vol up a few percentage points. By 7:30 am when I checked the prices this thing had not moved from my entry price. <br /><br />But after DOE's were released crude dropped another dollar per bbl and vol jumped up another 3-4% for a total jump of 6.5% on the day.<br /><br />So eventually some of that caught up with the strangle which increased by about 30cts or about a $3,000 gain. But I will happily take my scratch trade as it was not what I had expected. I would had expected it to be up way more than that on a 6.5% pop in vol.Anonymoushttps://www.blogger.com/profile/02083421527404780093noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-7238390602394340012010-12-30T10:06:11.360-08:002010-12-30T10:06:11.360-08:00So theoretically this should have worked right, be...So theoretically this should have worked right, because you got directional movement and an increase in vol?Jason Haashttps://www.blogger.com/profile/08138027111150684908noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-13459337370725629732010-12-30T07:55:50.802-08:002010-12-30T07:55:50.802-08:00So this traded ended up being short lived. We came...So this traded ended up being short lived. We came in today with crude down a buck and Vol ticking up 3% from yesterday and the strangle was exactly where I got in yesterday.<br /><br />So rather than give it any more time to loose theta I closed it out for a scratch trade.Anonymoushttps://www.blogger.com/profile/02083421527404780093noreply@blogger.com