All I did was to enter your trade (-25 EW OCT 1385, +50 EW NOV 1385, -25 EW DEC 1385) at the prices you gave on an OV paper tradaing account. The P/L graph is for Oct 31 expiration. I attached the detail analysis with ES dec futures at 1400 on October 31.
You might want to have a look at the following graphs by adjusting some settings: plot lines: +4 @ Day Step step: +2 DELTA (change from P/L OPEN) plot lines: +4 @ Day Step step +2 VEGA (change from DELTA) That will show you what your DELTA and VEGAs will theoretically be today, 2 days from now, 4 days from now, 6 days from now and 8 days from now i.e. it will give you a sense of how the greeks change over time. You can obviously also plot THETA and GAMMA if required. THETA not surprisingly peaks around the short strike. MoMoney.
No, it looks like for anything above 1385 you'll have to pay the intrinsic value for the OCTs while most of your gains on the NOVs will be used to offset the DECs.
Something is still not right I think. THink of an extreme. If the ES is at 1600, all the calls will be trading pretty much at intrinsic value. To close out the spread it will cost you a slight debit due to b/a spread but not a total loss as your chart implies. Look at OCT/NOV/DEC 1300 ES Calls to see what I mean. Although it is across 3 months the risk reward profile will look like a butterfly one nut slightly warped. Yours has no profit at all.
Assume market at 1420 at expiration. OCT 1385 is worth about $35.00 NOV 1385 is worth, let's say $40.00 and DEC 1385 is worth about $47, estimates of time value premium based on current ES prices. It will cost you $82 to close all shorts and you receive $80 for your longs....... I made up these prices but given time value premiums they make sense and are within $1 of what might actually be... Still results in a net profit once the credit is factored in.
Me thinks that is the problem, hence the immediate $10K loss if one were to open and close the position straight away :eek: T+0 @ ES 1360 If you can load actual current market prices for the legs, things should look better. 2 cents. MoMoney.
The image should look a little like this. I modelled it on SPX but there should not be a huge difference in the shape of the curves, just the magnitidue of the peaks and valleys due to the different multipliers and shifted due to premium in futures.
You are right mo. The initial loss at T+0 is because I used coach's prices. But I'm still getting the same shape.
But it should make sense that the position has a large profit if the ES is at 1385 at OCT expiration. The OCT calls expire worthless and the NOV and DEC 1385 calls have a nice net credit close out the position. As a parallel case, look at the NOV and DEC 1360 ES calls. Assuming we stay where we are and the OCT 1360 expires worthless, the NOV and DEC can be close for a net credit. Even adding in another week of theta to those NOV and DEC calls, it is still a significant profit. So, if your chart is underwater at 1385 at expiration of the 1385 calls at the end of OCT, something does not seem right...