Nearly perfect in the center. Greeks for the position are nicely under control. I like to have short delta, especially in a vega negative position. This way if we go down my short delta's and the short vega's will compensate each other (for awhile).
Let's focus today on the size of the move in the RUT in term of a standard deviation. Check Wikipedia for Normal distribution curves, and for the chance that a move is 1 standard deviation and 2 standard deviations.
To calculate the size of the expected move based on the implied volatility you can use the following formula.
Underlying * IV * SQRT(time)
So for today's move in the RUT that is
777 * 22% * SQRT(1/365) = 8.94. The RUT had a 17pnts move, so today was a 2SD move.
For a week that is
777 * 22% * Sqrt(7/365) = 23 pnts
By itself a 2SD move is not a problem for my trade. I get frustrated when they come frequently and especially when they come frequently in the opposite direction.
I finish off with some good sites for option education.
Reply With Quote