Buying deep OTM puts

Discussion in 'Options' started by Quant Dracula, Nov 4, 2015.

  1. Bry

    Bry

    QD, what was the strike on your puts?
     
    #11     Nov 5, 2015
  2. On 21 Aug purchased 4150 puts expiring 17Sep15, paid 2 points. The date they were 14 was 24th Aug.
     
    #12     Nov 5, 2015
  3. Sounds great. What is your profit/loss statement from this move, %-wise o_O
     
    #13     Nov 5, 2015
    Bry likes this.
  4. Hi - like I said in my original post, these were part of a spread I had in place, not an outright buy. I held these into expiry and they expired worthless.
     
    #14     Nov 5, 2015
  5. VTS

    VTS

    When the VIX goes from a 13 handle into the 50's in a week, you'd expect some off the charts high standard deviation moves in most underlying's including options. So the fact that your OTM put skyrocketed in value isn't surprising.

    I guess in your case what's more important is, what spread was the put a part of, and how did the spread do? Maybe you could provide more information. I'm curious why you'd hold anything to expiry.
     
    #15     Nov 5, 2015
    Quant Dracula likes this.
  6. The term you're looking for is "elasticity" or "gearing," although deep OTM options are really a vega play, not a delta play.

    https://en.wikipedia.org/wiki/Greeks_(finance)
    Lambda
    [​IMG]
    Lambda, [​IMG], omega, [​IMG], or elasticity [4] is the percentage change in option value per percentage change in the underlying price, a measure of leverage, sometimes called gearing.
     
    #16     Nov 5, 2015
    Windlesham1 and Quant Dracula like this.
  7. Bry

    Bry

    The price plunge took place from Aug 20-24. You might have a market timer in you!
     
    #17     Nov 5, 2015
    Quant Dracula likes this.
  8. Ha ha, unfortunately it was pure dumb luck.
     
    #18     Nov 5, 2015
  9. Thanks for replying - the rest of the position was nothing really particularly interesting. I had some 85% long puts that I bought earlier in the year with Dec15 expiry and they had been bleeding down in value so when the market dipped I took the opportunity to convert them into 95-85% put spreads and extend the duration for another 6 months for pretty much no cost. But that opened up the tail risk so I simply bought the one month 70% puts as a just-in-case safety net.
     
    #19     Nov 5, 2015
  10. #20     Nov 5, 2015