Per your own screenshots. short straddle: 3.8 long strangle 2.1 net: 1.7 T+1 short straddle: 5 long strangle: 2.7 net: 2.3 Trying to get a max profit of <1.7 by may expiration, you lost 0.6 in a day. If the wings were further out, your loss would be even greater. I am not criticizing your diagonal combo as noone can predict a 10% silver drop today, but i am not sure how this trade is considered doing fine right now...
because the Wing are June, max gain on May straddle could be as high as 3.8 (a little less due to Wing decay but the Wings are June). From that point of view 0.7 is not such a huge loss given the circumstances. Notice that June put is very close to being in the money, so the losses will be capped soon. My plan is to build similar positions after each large SLV move. I should have built one today but I am still working out the best way to do this while watching this position and SLV. After several positions are build i expect them to smooth out the unrealized PL. I do agree that the wings may be about the correct distance because the losses become a large % of credit during huge moves in the underlying.
delta for may 38P is .79 delta for june 33P is .43 for a net loss of ~.36 on every $1 drop in the underly. the net loss will gradually decrease and converge to a delta neutral hedge ("capped") after another $10 drop itm. So slv will need to goto $23 then your spread will be capped from further downside risk. you are right on the max profit at may expiration is the straddle premium - june strangle theta decay. For some reason i was thinking short iron butterfly's p&l
what you are saying is clearly wrong. once June 33P is in the money, it gains the same amount Short May 38P loses if SLV goes lower from there. By the time SLV @33 both calls are close to worthless so we only look at puts. The bottom line is that ~33 is where the position clearly can't lose any more money. This is not counting the premium I received for Short straddle. So I am guessing ~34 is where my max loss is, not far from what's on the image (before SLV took another 2% dive)
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I suggest you look up delta + gamma with regards to pricing behavior first, it's option 101. Your statement is completely false.
The Junes gonna have some premium to chew through before it matches the May delta. Losses continue well below 33 depending on IV and time remaining. Are you looking at expiry values? That's not going to give you an accurate picture.
i was wrong. the position needs to get deeper in the money to guarantee P33 and P38 moving at similar rates. but i very much doubt that ~23 is where it happens, seems way too far.
The maxiumum gain for the position will be nowhere near $3.80 since you have 2 June legs decaying for nearly 3 weeks. Assuming no IV bump helping the June's, you might get almost $3 but that's only with a perfect close at the short straddle's strike - a very unlikely event. Tho probably irrelevant, expected return for this type of position is a tad over ZERO due to the higher IV of the near month.