I have placed some options trades on a demo account while I'm still getting a feel for how prices move differently to usual asset classes. My question: How does my position show a larger loss (accounting for fx rates) than what was shown to me when I entered the trade? Expected max loss= $470USD or $680AUD Current loss = $510USD or $812AUD At time of of entering orders Current position: What am I missing?
When you enter an options trade, the usual payout chart is static and does not account for volatility changes. It is an estimate of what the outcome might be if volatility does not change. If volatility changes, then the prices of your options change as well, hence your Pnl. https://www.investopedia.com/ask/an...implied-volatility-impact-pricing-options.asp The sooner the expiry date for your options is, the more sensible to changes in volatility.
I don’t think this is the answer. Firstly the longer they expiry date the more sensitive to changes in volatility. These are like 3 day options. The pnl graph looks like the expiration pnl. The pnl up to expiry approaches the expiration pnl. I don’t understand currency options that well but my guess is that it has something to do with that.
the spread is 90 wide. so, 90=47+43. The difference of the current prices shown in your image is greater than the width of the spread. My guess is the current prices are wrong or last traded.
2rosy is right. I was thinking it was some kind of financing thing (100k for a few days could be worth a few dollars) Instead it was the value > the spread width which is not possible. KISS, right?
If max loss is changeable while the options are open then wouldn’t that cause total chaos with your margin requirement? One calculates the margin requirements when the trade is put on, assuming no naked shorts and then the max loss changes causing margin to change?