The Credit Straddle : Part 2-Expiry of the Position Initiated on 2nd NOV 2018

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Summary , on 2nd November for the initiated credit straddle  on Reliance capital , If held till Expiry the position would have approximately ended as below :
Name
RELCAP
Lot Size
1500.00
Date02-Nov-18
Spot ref
Sold/Bot
CE/PE
Strike
Premium Paid(-) / Received (+) Rs/Lot
254.00
Sold
CE
260
14.40
251.00
Sold
PE
250
14.50
Implied Volatility (IV) , %
Delta
Vega
Theta
Gamma
SOLD 260 CE
60.00
-0.50
-0.28
-0.32
-0.01
SOLD 250 PE
58.00
0.55
-0.27
-0.31
-0.01
If options were held Till Expiry, with a passive Strategy
Settlement Price
228.55
Date29-Nov-18
Spot ref
Sold/Bot
CE/PE
Strike
Price For Squaring
230.00
Sold
CE
260
0.00
230.00
Sold
PE
250
-21.45
Premium recd
Premium Paid
Net
Net Profit At Expiry per Lot
28.90
-21.45
7.45
Net Profit in ,Rs
11,175
So left out as it would, the credit Straddle would have yielded Rs 11,175  per lot .
The questions  to ask are
1. Is that the what  should have done or could something substantially better be achieved?
2. Was the Delta tracked and neutralised or minimised over the course of the month and if so could it have yielded a better result?
To answer question 1 , lets look at the movement of the option premiums of Each Strike over the course of the month :
250 PE PRICE MOVEMENT
Date
Open
High
Low
Close
Settle Price
29-Nov-18
11.00
27.50
11.00
21.80
21.80
28-Nov-18
10.15
14.60
6.65
12.80
12.80
27-Nov-18
19.00
22.00
15.35
17.45
17.45
26-Nov-18
12.40
25.55
12.40
20.00
20.00
22-Nov-18
13.55
14.55
10.65
14.25
14.25
21-Nov-18
12.20
12.80
11.20
11.20
11.20
20-Nov-18
13.20
16.50
11.60
14.80
14.80
19-Nov-18
18.50
18.50
11.10
13.25
13.25
16-Nov-18
9.30
20.15
9.30
18.10
18.10
15-Nov-18
9.95
14.00
8.70
9.95
9.95
14-Nov-18
6.70
11.95
6.65
10.50
10.50
13-Nov-18
10.05
12.80
7.45
7.85
7.85
12-Nov-18
7.65
10.90
7.65
9.45
9.45
09-Nov-18
13.70
13.75
7.70
8.45
8.45
07-Nov-18
14.05
14.60
13.55
13.85
13.85
06-Nov-18
13.20
15.65
12.45
14.85
14.85
05-Nov-18
15.45
19.20
13.60
15.05
15.05
02-Nov-18
15.25
15.90
11.10
15.00
15.00
OBSERVE THAT:
  1. Between 9th November to 15th November : the sold 250 PE could have been covered easily between 7.70 and 10.00.
  2. Assume that the position was squared on 13th November at a spot ref of 259.00 at 8.05(IV  58%, Delta 0.65 , Vega -0.20 , Theta -0.39, Gamma 0.01),  ) . P & L booked : 14.50 -8.05 = 6.45 per lot or Rs 9,675 per lot
 Points to Note :
  1. Over 10 days the IV has remained much the same , which implies the volatility is likely to persist. This is intuitive as well since the range over the past month has been between 225 to 275.
  2. The loss in Premium has been roughly due to Delta(0. 55*8 =4.40, Theta = 10 * .31 =3.10 , total 7.50 – some recording error of spot at entry maybe else the total should be close to 6.45)
260  CE PRICE MOVEMENT
Date
Open
High
Low
Close
Settle Price
29-Nov-18
0.40
0.45
0.05
0.05
0.00
28-Nov-18
1.80
1.80
0.30
0.40
0.40
27-Nov-18
0.90
1.40
0.70
1.05
1.05
26-Nov-18
1.95
1.95
0.65
0.80
0.80
22-Nov-18
3.95
4.10
1.95
2.05
2.05
21-Nov-18
4.50
5.20
3.65
3.85
3.85
20-Nov-18
4.10
5.90
3.65
4.15
4.15
19-Nov-18
3.85
8.10
3.00
4.85
4.85
16-Nov-18
7.60
7.75
3.50
3.70
3.70
15-Nov-18
8.45
9.10
6.45
7.45
7.45
14-Nov-18
13.20
13.75
7.65
8.80
8.80
13-Nov-18
11.15
14.15
9.00
12.85
12.85
12-Nov-18
15.25
15.55
11.75
12.65
12.65
09-Nov-18
11.05
16.70
10.40
15.45
15.45
07-Nov-18
11.75
11.75
10.80
11.00
11.00
06-Nov-18
12.95
14.90
9.50
10.70
10.70
05-Nov-18
13.85
16.40
9.90
12.30
12.30
02-Nov-18
14.95
18.65
13.10
14.05
14.05
On 13th the 260 CE could have been squared at 13.00 , and booked 1.40 per Lot or Rs 2,100 per lot .
This taking the  Total profit booked per lot to 9,675+ 2,100 =Rs 11,775 per lot. That’s more than the amount per lot than at Expiry.
KEY LESSON(S)  SO FAR
1 .When Spot has been in a range, the IVs are likely to persist .
2. To unwind the credit straddle we are looking for a favorable delta move on one side along with a time value erosion , whilst on the other side hopefully the time value erosion balances out the opposing Delta .
OR
if the 250 PE is squared and 260 CE is left open , the left position would have the following properties:
260 CE at a spot ref of 259 on 13th November with Delta  -.52 , Vega  -0.22 Theta -0.42 Gamma -0.01 , IV  60% Price 13.00.
So what could be the course of action with an open 260 CE ?
Wait for the NEXT Article !

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