Hello, I have set up a graph in TOS. Looking at below picture I am not sure what I am missing? http://www.bilddump.se/bilder/20161222125236-195.252.32.111.png Sell 1 contract at strike 26: 4.40 Buy 3 contracts at strike 30: 1.36 As seen I have put the cursor at 29.96 and TOS shows a maxloss: -70.33$ at expiration. My question is, shouldn't the maxloss at 29.96 be -808$ like: Strike 26: -4$ * 1 contract = -4$ Strike: 30: -1.36$ * 3 contract: -4.08$ Total maxloss: -8.08$ * 100 = -808$
At expiration, If the stock is 30 @ expiration, the 30 strike incurs a loss of $408 but you make $40 on the 26 strike. Looks like a loss of $368 if they are the same expiration date not including fees. Maybe they are looking at today vs expiration.
Look at the Date on your expiration plot! It is 01/21/2017 <-- The TOS default is expiration of shortest term option. One way to observe the RISK at expiration of the April option is to set the date to 04/21/2017.
Yes ofcoure, you are right we make $40 at that point. Then the question is for the loss of $408 for strike 30 at expiration 21 APR 17. Okay so they look at the nearest expiration. If it is $-70.33 at the nearest expiration, we make a profit of $40 which means that strike 30 must make a loss equal to: ($-70.33 - $40 = $-110.33) As strike 30 has a later expiration, this must mean that it has lost timevalue $-110.33 in the first month(30 days). Then is the question how to calculate this manually as theta is changing day by day?
I found this image that shows how much the time decay is in periods: (The link didn't work on internet so I add it) http://www.bilddump.se/bilder/20161223002126-195.252.32.111.png Using for example as the example shows 120 days: 30 days: 5% 60 days: 10% 90 days: 15% 120 days: 70% Perheps this is somehing that could appoximate it, if those numbers are correct?
I may have misunderstood your question. -- I Thought it was related to the expiration date! Personally, when I consider MAX Risk, I do the evaluation based on the specific position/trade, not really a portfolio Max Risk. (I use a sloppy estimation of portfolio risk as sum of all position risks, which is overly pessimistic -- but I like to be able to keep each trade independent); By trade, I mean each campaign or strategy.
Yes, I also try to calculate the maxrisk in the trade and keep the trade independent. I did a simple example with the same expiration month: http://www.bilddump.se/bilder/20161223215359-195.252.32.111.png When looking at the picture in TOS, there is a maxrisk of -135.70 at spotprice 30. I can't wrap my head around how it can be -135.70 because when I calculate this manually like below what the maxrisk at expiration for strike 30 would be: Strike 26: (26 - 30) + 4.25(premium) = $0.25 Strike 30: -(0.74 * 3) = -2.22 Total Max Risk: -2.22 + 0.25 = -1.97 = -1.97 * 100 = -$197 Shouldn't the maxrisk be -$197 ?
Since you are short one expiration and long 3 of another expiration, it is unclear to me what kind of trade this is. Is this construction one of your typical trades? -- It is greek to me. Understanding the trade may help to properly quantify the risk. IE, if this was more of a calendar or diagonal, then the trade would be closed or morphed by expiration of the earlier term. (perhaps rolling the short out, or something) Unclear what the "real" trade concept is.
Sorry my fault, it shouldn't have been the 27 Jan 2017 expiration but the 20 Jan 2017. When I changed it to 20 Jan 2017, then the calculation was correct. My mistake. I am not sure myself what trade it is, I think I am just experimenting a little with the strikes and expirations and see what different trades that could be done. Yes, I am thinking of that also to perheps rolling the short out somehow. I try to code something for this and see what could be found from this.
Since my current trades are lumped into specific expirations (don't have any single strategies spanning multiple expirations) {no time spreads} I can merely use the expiration to determine max risk, and total all strategies for a conservative MAX risk. This allow me to use the MACK truck model... A Mack truck terminates me: so, what can happen to my positions (impact to family)! -- Multiple expirations max risk look ugly with this model. I think I have adequately coded max risk properly for single expiration strategies, so if you have questions, post and I'll try to respond.