Add training workflow, datasets, and runbook
This commit is contained in:
@@ -0,0 +1,32 @@
|
||||
The goal here is for implied volatility to fall to around 20. If it does, John
|
||||
makes $1,254 (6 vol points × 2.09 vega). He also thinks theta gains will
|
||||
outpace gamma losses. The following is a two-week examination of one
|
||||
possible outcome for John’s trade.
|
||||
Week One
|
||||
The first week in this example was a profitable one, but it came with
|
||||
challenges. John paid for his winnings with a few sleepless nights. On the
|
||||
Monday following his entry into the trade, the stock rose to $106. While
|
||||
John collected a weekend’s worth of time decay, the $1.25 jump in stock
|
||||
price ate into some of those profits and naturally made him uneasy about
|
||||
the future.
|
||||
At this point, John was sitting on a profit, but his position delta began to
|
||||
grow negative, to around −1.22 [(–1.18 × 1.25) + 0.26]. For a $104.75
|
||||
stock, a move of $1.25—or just over 1 percent—is not out of the ordinary,
|
||||
but it put John on his guard. He decided to wait and see what happened
|
||||
before hedging.
|
||||
The following day, the rally continued. The stock was at $107.30 by
|
||||
noon. His delta was around −3. In the face of an increasingly negative delta,
|
||||
John weighed his alternatives: He could buy back some of his calls to offset
|
||||
his delta, which would have the added benefit of reducing his gamma as
|
||||
well. He could buy stock to flatten out. Lastly, he could simply do nothing
|
||||
and wait. John felt the stock was overbought and might retrace. He also still
|
||||
believed volatility would fall. He decided to be patient and enter a stop
|
||||
order to buy all of his deltas at $107.50 in case the stock continued trending
|
||||
up. The XYZ shares closed at $107.45 that day.
|
||||
This time inaction proved to be the best action. The stock did retrace.
|
||||
Week one ended with Federal XYZ back down around $105.50. The IV of
|
||||
the straddle was at 23. The straddle finished up week one offered at $4.10.
|
||||
Week Two
|
||||
The future was looking bright at the start of week two until Wednesday.
|
||||
Wednesday morning saw XYZ gap open to $109. When you have a short
|
||||
straddle, a $3.50 gap move in the underlying tends to instantly give you a
|
||||
Reference in New Issue
Block a user