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# How to simulate selling straddles?

Discussion in 'Options' started by luckyputanski, Jul 12, 2013.

What happens if you buy them?

#21     Jul 13, 2013
2. ### luckyputanski

Well, it obviously depends which way market moves. In a year I can sell about 52 straddles and in total losses are almost always bigger than total credit. One easy answer would be that I calculate volatility in a wrong way, but I'm getting reasonable results. Here's the code:
return 0;
}
DoubleArrayList Lns = new DoubleArrayList();
int i;
for (i = 1; i <= DaysAhead; i++) {
if (Day + i - 1 >= DayPricesIVs.size() - 1) {
break;
}
Lns.add(Math.log(DayPricesIVs.get(Day + i).Price / DayPricesIVs.get(Day + i - 1).Price));
}
double StdDev = Lns.NonCenteredVolatility();
double Vol = (StdDev * Math.sqrt(252)* DayPricesIVs.get(Day).Rand);
return Vol;
}

Non-centered vol functions:
double NonCenteredVolatility() {
int i;
double SumSq = 0;
for(i = 0; i < List.size(); i++)
SumSq += List.get(i) * List.get(i);
return Math.sqrt(SumSq / List.size());
}

#22     Jul 13, 2013
3. ### luckyputanski

It makes profit almost every year. (And that with IV slightly higher than future realized vol).

#23     Jul 13, 2013
4. ### comintel

Depending on which years you tested, it may just be right.

The market has been trending up for the past few years overall.......

#24     Jul 13, 2013
5. ### luckyputanski

It's a simulation with artificial prices with changes normally distributed. 1 simulation = 365 days. What I meant was "It makes money almost on every simulation". Strange.

#25     Jul 14, 2013

just one question why?

#26     Jul 14, 2013
7. ### comintel

Oh I thought you were using real prices.

If they are simulated, it may be pretty hard to untangle idiosyncrasies of the simulation or model from idiosyncrasies of the market.

It is still a very commendable endeavor though......I am trying simulations / back-testing also in R.

#27     Jul 14, 2013
8. ### luckyputanski

Part of bigger simulation, I wanted to make sure first step is right. I expected, that over large number of simulations net result would about 0.

#28     Jul 14, 2013
9. ### luckyputanski

I thought that Black-Scholes will value options correctly even if prices are fake.

#29     Jul 14, 2013