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Delta neutral Theta biased trading |
Alchemist
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Joined: 09 Aug 2010
Posts: 853
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Post: #1  Posted: Wed Aug 31, 2016 2:28 pm Post subject: Delta neutral Theta biased trading |
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Something popped in my mind yesterday so starting this experimental diary of BNF option thread.
PLEASE DO NOT WASTE TIME READING THIS THREAD.
Cheers
SH
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BNF Delta hedging trade book.xlsx |
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34.64 KB |
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713 Time(s) |
Last edited by Alchemist on Thu Sep 14, 2017 6:36 pm; edited 5 times in total |
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manojkr78
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Joined: 07 Mar 2011
Posts: 1014
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| Post: #2 Posted: Wed Aug 31, 2016 2:38 pm Post subject: |
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| bank nifty options are available on weekly expiry.......must be interesting
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Alchemist
Yellow Belt
Joined: 09 Aug 2010
Posts: 853
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| Post: #3 Posted: Wed Aug 31, 2016 2:49 pm Post subject: |
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Bought BNF fut in morning at 19755 price
Sold 19700 CE at 130 (8th Sep series)
Sold another 19700 CE at 344 (28 Sep series)
Ratio covered call with total credit received 344+130 = 474
Delta neutral at this stage.
At around 2 PM .. BNF hit 19900 which meant Delta of sold options became higher than 1.
Hence bought back 19700 CE of 8th Sep at 217 & sold 19900 CE (28Sep) at 324.
Also sold 19700 PE (28th Sep series) at 324
Total credit 474-217+324+324 = 905
Will do further adjustments based on how BNF moves.
Cheers
SH
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crudeoil.xlsx |
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25.5 KB |
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582 Time(s) |
Last edited by Alchemist on Fri May 12, 2017 7:32 pm; edited 5 times in total |
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EssJay
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Posts: 270
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| Post: #4 Posted: Wed Aug 31, 2016 6:24 pm Post subject: |
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| awesome thread. Keep rocking.
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Alchemist
Yellow Belt
Joined: 09 Aug 2010
Posts: 853
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| Post: #5 Posted: Thu Sep 01, 2016 1:33 pm Post subject: |
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BNF has moved up 200 points since I opened the position.
Both the sold options have become ITM now therefore there combined Delta has become around 1.2 now.
To bring the delta back to close to 1, I have bought back 19900 CE at 350 and sold 20100 CE at 241
Net credit now 905-350+241 = 796
Delta is back to close to 1 now so overnight risk completely hedged.
Cheers
SH
Last edited by Alchemist on Sun Sep 25, 2016 6:54 pm; edited 1 time in total |
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pkholla
Black Belt
Joined: 04 Nov 2010
Posts: 2890
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| Post: #6 Posted: Fri Sep 02, 2016 10:15 am Post subject: |
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Alchemist: I dont understand, I ask Qs. Hope u dont mind
I can follow that you are trading "Delta Neutral" but can you post a short para how the trades relate to "Theta" ?
(text book def'n relates to the time value decay of an option as expiry comes near?)
Cheers, Prakash Holla
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Alchemist
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| Post: #7 Posted: Fri Sep 02, 2016 3:53 pm Post subject: |
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| pkholla wrote: | Alchemist: I dont understand, I ask Qs. Hope u dont mind
I can follow that you are trading "Delta Neutral" but can you post a short para how the trades relate to "Theta" ?
(text book def'n relates to the time value decay of an option as expiry comes near?)
Cheers, Prakash Holla |
You are spot on Prakash, Theta bias means our bias is only eating time value decay while keeping our risk hedged from a Delta perspective.
Cheers
SH
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Alchemist
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Joined: 09 Aug 2010
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| Post: #8 Posted: Tue Sep 06, 2016 11:06 am Post subject: |
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| Alchemist wrote: | BNF has moved up 200 points since I opened the position.
Both the sold options have become ITM now therefore there combined Delta has become around 1.2 now.
To bring the delta back to close to 1, I have bought back 19900 CE at 350 and sold 20100 CE at 241
Net credit now 581-350+241 = 409
Delta is back to close to 1 now so overnight risk completely hedged.
Cheers
SH |
BNF continues to rally and is up 500 points now since I opened the position. Spot is trading at 20200 & Future is trading at 20270.
As both 19700 & 20100 CE have become ITM now, the combined delta of these two positions have become more than 1 (0.81 + 0.6) which means if BNF continues to go up I will start making losses. Therefore it is time to 'manage' the position and make it delta neutral again.
I can either do it by buying some calls or selling some put. I am selling 20000 PE (8 Sep) at 40 (120 QTY) and also selling 19900 PE at 22 (120 QTY) to pocket another 62 points. Once 8 Spe series expires tomorrow, I will have to look at managing this position again.
Total credit received till now 796 + 62 = 858
Cheers
SH
Last edited by Alchemist on Sun Sep 25, 2016 6:57 pm; edited 3 times in total |
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pkholla
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| Post: #9 Posted: Tue Sep 06, 2016 11:09 am Post subject: |
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| Alchemist wrote: | | You are spot on Prakash, Theta bias means our bias is only eating time value decay while keeping our risk hedged from a Delta perspective. Cheers SH |
Very clear and complete reply. No need to respond to this!
Thanks, SH! Prakash Holla
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Alchemist
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Joined: 09 Aug 2010
Posts: 853
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| Post: #10 Posted: Tue Sep 06, 2016 2:50 pm Post subject: |
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| Alchemist wrote: | | Alchemist wrote: | BNF has moved up 200 points since I opened the position.
Both the sold options have become ITM now therefore there combined Delta has become around 1.2 now.
To bring the delta back to close to 1, I have bought back 19900 CE at 350 and sold 20100 CE at 241
Net credit now 581-350+241 = 409
Delta is back to close to 1 now so overnight risk completely hedged.
Cheers
SH |
BNF continues to rally and is up 500 points now since I opened the position. Spot is trading at 20200 & Future is trading at 20270.
As both 19700 & 20100 CE have become ITM now, the combined delta of these two positions have become more than 1 (0.81 + 0.6) which means if BNF continues to go up I will start making losses. Therefore it is time to 'manage' the position and make it delta neutral again.
I can either do it by buying some calls or selling some put. I am selling 20000 PE (8 Sep) at 40 (120 QTY) and also selling 19900 PE at 22 (120 QTY) to pocket another 62 points. Once 8 Spe series expires tomorrow, I will have to look at managing this position again.
Total credit received till now 409 + 62 = 471
Cheers
SH |
BNF continues to rally so 20000 PE has become 17, exiting it at 17 and selling 20200 PE instead (120 qty) at 57 hence pocketing another 40 points credit.
Total credit received now 858+40 = 898 points
Cheers
SH
Last edited by Alchemist on Sun Sep 25, 2016 6:58 pm; edited 1 time in total |
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Alchemist
Yellow Belt
Joined: 09 Aug 2010
Posts: 853
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| Post: #11 Posted: Fri Sep 09, 2016 10:42 am Post subject: |
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20200 PE and 19900 PE both expired worthless so all credit pocketed.
Currently 120 BNF held long from 19755, right now trading at 20278
20100 CE was sold at 241, right now trading at 383
19700 CE was sold at 324, right now at 420
Total credit in pocket still remains 898 points.
Cheers
SH
Last edited by Alchemist on Sun Sep 25, 2016 6:58 pm; edited 1 time in total |
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Alchemist
Yellow Belt
Joined: 09 Aug 2010
Posts: 853
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| Post: #12 Posted: Thu Sep 15, 2016 7:42 pm Post subject: |
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| Alchemist wrote: | 20200 PE and 19900 PE both expired worthless so all credit pocketed.
Currently 120 BNF held long from 19755, right now trading at 20278
20100 CE was sold at 241, right now trading at 383
19900 CE was sold at 324
19700 PE sold at 324 also held.
Total credit in pocket still remains 898 points.
Cheers
SH |
BNF bought at 19755 now at 19955 (200 points profit)
20100 CE sold at 241 is now at 187 (54 point profit)
19900 CE sold at 324 is now at 411 ( 87 point loss)
19700 PE sold at 324 as well held.
Total credit in pocket 898
If I close all positions today I will make 471+200+54-87 = 638 points profit however I want more.
Position remains Delta neutral and 2 more weeks to go for Expiry.
Cheers
SH
Last edited by Alchemist on Sun Sep 25, 2016 7:02 pm; edited 2 times in total |
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vvsp
White Belt
Joined: 10 Nov 2010
Posts: 62
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| Post: #13 Posted: Thu Sep 15, 2016 8:41 pm Post subject: |
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| Alchemist wrote: |
BNF bought at 19755 now at 19955 (200 points profit)
20100 CE sold at 241 is now at 187 (54 point profit)
19700 CE sold at 324 is now at 411 ( 87 point loss)
Total credit in pocket 471
If I close all positions today I will make 471+200+54-87 = 638 points profit however I want more.
Position remains Delta neutral and 2 more weeks to go for Expiry.
Cheers
SH |
Hi Alchemist,
Please correct me if I am missing something.
Total credit in pocket 471 pts. include the pts. you got when 19700 CE and 20100 CE were sold. The market price of these at the time of covering the short position is to be reduced from 471 since you buy them from market.
The profit if you close the position today would be:
471-187-411+200 = 73 pts.
Thanks,
vvsp.
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Alchemist
Yellow Belt
Joined: 09 Aug 2010
Posts: 853
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| Post: #14 Posted: Sun Sep 25, 2016 7:08 pm Post subject: |
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Apologies - I had not included the 19700 PE that was sold originally in the credit received hence the errors. I have corrected them below and the total credit in pocket from selling option till now is 898 points
Basically I have below open positions currently.
BNF long from 19755 closed on Friday at 19928 (173 points profit)
BNF 20100 CE sold, closed at 70
BNF 19900 CE sold, closed at 155
BNF 19700 PE sold, closed at 67
If I was to close all positions on Friday, my profit would have been 898+173-70-155-67 = 779 points profit.
Cheers
SH
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Alchemist
Yellow Belt
Joined: 09 Aug 2010
Posts: 853
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| Post: #15 Posted: Mon Sep 26, 2016 4:23 pm Post subject: |
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All positions closed at day end
BNF long from 19755 exited today at 19645 (110 points loss)
BNF 20100 CE that was short exited at 12
BNF 19900 CE that was short, exited at 35
BNF 19700 PE that was short, exited at 145
Total profit = 898-110-12-35-145 = 596 points which is not bad given this was a completely delta neutral strategy.
I have opened fresh positions as below:
Banknifty future shorted at 19645
BNF 19500 PE (27OCT) sold at 300
BNF 19000 PE (27OCT) sold at 162
BNF 18500 PE (27OCT) sold at 86
Total credit received 300+162+86 = 548 points
Cheers
SH
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