stress-testing an option position

Discussion in 'Options' started by morganpbrown, Oct 13, 2021.

  1. LM3886


    Maybe this is a type of stress test that can be done by your analysis but not broker's software: You can randomly generate stock price paths and visualize the PnL changes overtime.
    #11     Oct 14, 2021
  2. That is true. I could certainly do a Monte Carlo type analysis that I doubt the typical broker software would do
    #12     Oct 14, 2021
  3. Here's a set of P&L curves for the above mentioned diagonal call spread, along the lines you were thinking.

    In this case, I vary the strip volatility up (+vol) or down (-vol) by 1%/day. So over the course of 15 days, that's +/- 15%.

    The green curve just shows the P&L of the -vol case at 16 DTE (day 0).

    Definitely kind of interesting to look at. I'm pushing the limits of what one can/should do in a spreadsheet. :confused:

    #13     Oct 14, 2021
    LM3886 likes this.
  4. Overnight


    Hrmm, after reading what you typed above, something clicked in me...You have a bit of OCD in you, don't you? i can finally see it. You hide it well on the phone, but man it is coming out here. :)
    #14     Oct 18, 2021
  5. jamesbp


    Looks like TastyTrade just went back to fix the problem ... and made it worse ... today's Market Measure on "Expected Move" for SPY with Spot = 420 / IV = 19.3% / DTE = 34 Days

    The basic approximation formula would suggest that the Expected Move is :
    Spot 420 x IV 19.3% x Sqrt(34/365) = 24.70 points

    TastyTrade proprietary formula = 13.60 points

    #15     Oct 18, 2021
    BlueWaterSailor and morganpbrown like this.