23 lines
1.2 KiB
Plaintext
23 lines
1.2 KiB
Plaintext
The calls earned Bobby a total of $700, while the stock lost $300. Of
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course, with this type of trade, it is not relevant which leg was a winner and
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which a loser. All that matters is the bottom line. The net P&(L) on the trade
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was a gain of $400. The gain in this case was mostly a product of IV’s
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rising. Exhibit 12.10 shows the P&(L) per greek.
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EXHIBIT 12.10 Profit breakdown by greek.
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Delta
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The position began long 0.20 deltas. The 0.30-point rise earned Bobby a
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0.06 point gain in delta per contract.
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Gamma
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Bobby had an initial gamma of +1.8. We will use 1.8 for estimating the P&
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(L) in this example, assuming gamma remained constant. A 0.30 rise in the
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stock price multiplied by the 1.8 gamma means that with the stock at $50,
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Bobby was long an additional 0.54 deltas. We can estimate that over the
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course of the 0.30 rise in the stock price, Bobby was long an average of
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0.27 (0.54 ÷ 2). His P&(L) due to gamma, therefore, is a gain of about 0.08
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(0.27 × 0.30).
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Theta
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Bobby held this trade for three days. His total theta cost him 1.92 or $192.
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Vega
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The biggest contribution to Bobby’s profit on this trade was made by the
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spike in IV. He bought 30 volatility and sold 35 volatility. His 1.20 position
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vega earned him 6.00, or $600. |