Hello, I am trying to manually calculate what the profit in a risk graph is at strike 1 and strike 2 in this example. I use the delta value of 0.30 as $0.30/1 dollar increase in the underlying for strike 1. I wonder if I have calculated this correctly? Current Spot price: $100.0 Strike 1: Buy 1 Call at strike 105 for: $1.57 (Delta: 0.30) Strike 2: Sell 2 Call at strike 110 for: $0.61 (Delta: 0.14) Strike 3: Buy 2 Call at strike 115 for: $0.20 (Delta: 0.06) What is the profit at strike 1? Profit strike 1: $-1.57 * 1 Call = $-1.57 Profit strike 2: $0.61 * 2 Call = $1.22 Profit strike 3: $-0.2 * 2 Call = -$0.40 Total: -1.57$ + 1.22$ - 0.40$ = $-0.75 What is the profit at strike 2? Profit strike 1: (110 - 100) * 0.30 = $3 * 1 Call = $3 Profit strike 2: $0.61 * 2 Call = $1.22 Profit strike 3: $-0.2 * 2 Call = -$0.40 Total: 3$ + 1.22$ - 0.40$ = $3.82
Are you looking for impact at T+0, or Expiration, or something else? -- Seems you mean Expiration. (Are all strikes at same Expiration?)
Yes, that is true. All strikes are at the same expiration. So it would be the scenario as it looks like on the risk profile at expiration.
Then Delta is N/A; Look at position value at expiration, then merely add that to the initial position cost. (At Expiration, IV is zero, only value is Intrinsic, calculation is simple)
I am not sure I followed your explanation. Do my calculation look correct when looking at the total profit(not value) at strike 1 and strike 2 at expiration. I think it is equal to your explanation?
Below I think I am addressing your example: Initial position entry cost, excluding commissions is $-75.00 Let me know if you spot a mistake. No commissions are addressed, and trade examined at Expiration.
Thanks for the spreadsheet. I am not sure now but are your calculation wrong and the below correct? I am a little confused. Expiration PnL at price points below. (Price points should be just above 105 and just below 110 for the purpose of the riskprofile to illustrate. Not how it is in reality. Like: 105.00001 and 109.99999) 105 - Short 110 ITM. - Longs are worthless Premium: 122 122 - 157 - 40 = -75 110 - Short 110 ITM. - Long 115 OTM. Underlying was at 100 in the beginning so for strike 1, Delta: 0.30 * 10 * 100 Premium: 122 122 + (157 + 300) - 40 = 539
For the first case you mention: Price at Expiration == $105. (Equal to the 105 Strike) You are short the 110, so you owe the difference! You owe (110-105) X 2 Contracts X 100 shares/Contract => Cost to you of $1000. Add your initial cost of $75 for a total Cost of $1075. The 105 strike and the 115 strike long positions are worthless. --- We can cover the other strikes, after we synchronize on the question/details.
>> The 105 strike and the 115 strike long positions are worthless. I am with you on that one. It must be something that I miss completely. You say that I owe the difference which will be: (110-105) X 2 Contracts X 100 shares/Contract => Cost to you of $1000 But I have shorted 2 calls at 110 and at expiration if the underlying is below 110, in this case on the strike 1 which is 105. Doesn't we keep the premium/credit which will be: +$122 and not -$1000 ?