Talking stocks, trading, and investing in general

[Piobaire]

volatility baby!

Theta needs to burn off as I just opened the position yesterday. Delta is also involved as it's not like OTM 30 DTE options are going to be 1. Then of course how does gamma impact delta, right?

I've been doing my homework quite thoroughly.

 

[gnatty8]

When the underlying goes up but somehow your put credit spread goes red. How does that even happen mathematically?

You're short the closer to the money option, so if the implied volatility of that option goes up by more than it does for the option you're long, which is further out of the money, I'd expect your net position to show a loss no?

 

[Piobaire]

That makes perfect sense particularly right after opening the position when the extrinsic value of both options will be at their highest before there's been any theta decay.

 

[gnatty8]

That makes perfect sense particularly right after opening the position when the extrinsic value of both options will be at their highest before there's been any theta decay.

Got yourself a sort of uncommon volatility "frown" there from the sounds of it..

 

[Piobaire]

I don't want this frown to turn upside down!

 

[Piobaire]

Took some tendies today off my CVNA spreads from yesterday. I closed out the puts I sold for $9 per more than the puts I bought. Now I wait for a down day and re-sell the puts, or if things are headed south, just let the longs expire basically even. I'm pretty much in a no lose situation with them now.

 

[lawyerdad]

Here's a little play with CVNA. Max profit is 140 and max loss is 860 but there's an 87% probability of profit. I mean, it would have to drop from 232 down to a BE of 188. 14% in a month, which you'll get on June 18th at any price over 190, isn't bad.

| Options Profit Calculator

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I’m assuming that’s “an 87% probability [assuming certain baked-in assumptions hold true]”? I have spent no time looking into how these strategies work.

 

[Piobaire]

I’m assuming that’s “an 87% probability [assuming certain baked-in assumptions hold true]”? I have spent no time looking into how these strategies work.

Pretty much. Black-Scholes calculation based off 30 day IV. And it's not 87% chance of max profit but that chance of some profit.k

This spread strategy works with either calls or puts and can be bullish or bearish depending if it's a call (bearish) or put (bullish.) You buy one option further from the current price of the stock then sell another option, same expiration date, closer to the money. The one you sell will give a bigger credit than the debit of the one you bought and your risk is limited to the spread between strike prices minus the credit you initially received. That credit is your max profit.

 

[lawyerdad]

Pretty much. Black-Scholes calculation based off 30 day IV. And it's not 87% chance of max profit but that chance of some profit.k

This spread strategy works with either calls or puts and can be bullish or bearish depending if it's a call (bearish) or put (bullish.) You buy one option further from the current price of the stock then sell another option, same expiration date, closer to the money. The one you sell will give a bigger credit than the debit of the one you bought and your risk is limited to the spread between strike prices minus the credit you initially received. That credit is your max profit.

Thanks. I had a very general understanding of the mechanics, was just curious about how the probability calculation comes about.
The lower your average basis the greater probability of profit, right?

 

[Piobaire]

It's all based off IV and the "Greeks." I'm not going to claim deep knowledge of the math but have learned enough in their use to be a complete danger to myself.

 

[lawyerdad]

It's all based off IV and the "Greeks." I'm not going to claim deep knowledge of the math but have learned enough in their use to be a complete danger to myself.

I always look to Greece for smart, strategic financial strategies.

 

[brokencycle]

I always look to Greece for smart, strategic financial strategies.

You think this is the basis of "It is all Greek to me"?

 

[Omega Male]

 

[lawyerdad]

You think this is the basis of "It is all Greek to me"?

That’s one theory.

 

[brokencycle]

Joke's on you: it proves how much value your banking regulation is killing