23 lines
1.6 KiB
Plaintext
23 lines
1.6 KiB
Plaintext
In this example, February is 59 days from expiration. Exhibit 10.10 shows
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the analytics for this trade with CRM at $104.32.
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EXHIBIT 10.10 Salesforce.com condor ( Salesforce.com at $104.32).
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As expected with the underlying centered between the two middle strikes,
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delta and gamma are about flat. As Salesforce.com moves higher or lower,
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though, gamma and, consequently, delta will change. As the stock moves
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closer to either of the long strikes, gamma will become more positive,
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causing the delta to change favorably for Joe. Theta, however, is working
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against him with Salesforce.com at $104.32, costing $150 a day. In this
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instance, movement is good. Joe benefits from increased realized volatility.
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The best-case scenario would be if Salesforce.com moves through either of
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the long strikes to, or through, either of the short strikes.
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The prime objective in this example, though, is to profit from a rise in IV.
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The position has a positive vega. The position makes or loses $400 with
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every point change in implied volatility. Because of the proportion of theta
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risk to vega risk, this should be a short-term play.
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If Joe were looking for a small rise in IV, say five points, the move would
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have to happen within 13 calendar days, given the vega and theta figures.
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The vega gain on a rise of five vol points would be $2,000, and the theta
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loss over 13 calendar days would be $1,950. If there were stock movement
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associated with the IV increase, that delta/gamma gain would offset some of
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the havoc that theta wreaked on the option premiums. However, if Joe
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traded a strategy like a condor as a vol play, he would likely expect a bigger |