Delta Neutral - Options - Accurate - Black Scholes

General
21

Hey @adityaparakh

Dont look at Delta - cause vega is too low.
I’ll correct it slightly - Dont look at vols. Because Vega is low and vols dont really matter outside OTM.

Dont look at premium price - as it wont effect delta-neutrality for practical pusposes or taking position.

It is rather important to be equidistant from weekly-future price. - Yes

To determine this future price :

For 25500CE = Rs.127 , 25500PE = Rs.173 ,

127-173 = F - 25500 , Hence F = 25454

I am a little surpised here. The future is in discount! Math is correct.

where the option prices are weekly ones. Choice of strikes of Options ? Closest to Spot ?

If I use : 25600CE=Rs85 and 25600PE = Rs.228 ,

85-228 = F-25600 , Hence F=25457 Close enough.

D will always be considered to be 1. All Days of Week / All 4 weeks ?
D = E^rt were t is number of days/ 365

Week1 =1.001151
Week2= 1.00230402
Week3=1.00345802
Week4=1.004613349

So take 1, unless you are looking at longer term options :slight_smile:

From this F value , we become equidistant and we are good ?

Spot : 25490 , MonthFuture : 25498 , Weekly F : 25454

A 200-250 point OTM position would 25200PE/25700CE based on calculated Weekly F. -
Yes

This F value , is more appropriate than SpotIndex or the Month End Future value ? Yes

As to determine the F value , and take our position we are not looking at all at the Spot or the Month-End-Future. !?
Interestingly, yes

The price of the options plays more role. This F becomes our only input for the OTM Strangle position.
Yes
Secondly a lesser significant question :

Say , Weekly F is 25525 , what would be an ideal combination to make a good balanced strangle average 200 points away
25300-25700

and least effected by moves either side.

And for 25575 ?
**25400-25800 **

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22

Never found a man with so much knowledge on Options in a public forum.
I thought they hide such men in glass museums

2 Likes
23

@Umar

Thanks Umar. You made my day :slight_smile:

But on a serious note, I have only scratched the surface of options. There is so much more we all can learn from each other!

Every time someone asks something here, I learn something new. And I think asking the right questions is way more important that answering them. So the praise goes to the people who ask questions

5 Likes
24

@Abid_Hassan

See Below :

So now there is substantial difference , in the monthly , spot and weekly calculated future.
I am taking the average of 25400 , 25500 , 25600 ie Spot , Spot + 100 , Spot -100 for options CE and PE.

We are to go with the Weekly Future to be our reference. And overlook Spot and Monthly.
Since , this will be our only input to determine the strangle , this is important.

Also , for yesterdays Future of 25454 , 25200PE/25700CE would be equi-distant at 250 points each.
Not , 25300-25700 or 25200-25600. Wonder why you suggested that.

Secondly ,
The reason for asking regarding 25525 and 25575 was to get a precise idea.
25300/25700 - would be 225 and 175 points away from 25525.
Wouldn’t this 25 point difference have some delta , and impact us.
Say we are short 200 lots each.

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Hey @adityaparakh

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@Abid_Hassan

Using Delta would bring us back to square one. The question whether it is worthwhile to check delta for weekly options.
We can simple change the quantity of CE and PE options to balance a bit.

@iSTFF , had advised to look to monthly future prices.
There is substantial difference of 60 points between Spoty/WeeklyFuture and Monthly Future.
@iSTFF , Dont you think WeekFuture would be a better reference for weekly options than MonthFuture here.

But in this case Weekly Future price is closed to Spot Index.
As you said , Weekly Future Price would probably be the best to look at , other than delta or spot or monthly future.

Anyhow please see below image : For 25375 , we take a position of 500 units-25100PE + 500 units -25200PE and 1000 units-25600CE. If we do such , I dont think it would be required to look at IV or Delta. ?
Broadly the objective being to be 200 points OTM and Delta-Neutral.

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Also , 25100PE : Rs.10 , 25200PE : Rs.20 , 25600CE - Rs.12.
So , 25100 and 25600 are equi-priced , yet we shall balance out the quantity by taking 500 of 25100 , 500 of 25200 against 1000 of 25600. And not 1000 each of 25100 and 25600.

27

Hi @adityaparakh
Weekly Futures don’t exist in BankNifty as of now, hence, monthly futures price seems to be a quick guide for strategies like short strangle, however, since Abid gave us a way to calculate the theoretical weekly futures value so I would go with the weekly futures value as a better reference than the monthly futures price. :+1:

28

There is no free lunch in weekly bank nifty options.

I have done more than enough experiments in bank nifty and all these directionless strategies are inconclusive.
If some strategy is inconclusive it clearly mean that it wont work.

@Srinivas you can add your views here as well dude

Attaching my P/L report and 95% of the trades are in Bank Nifty. and i guess about 90% of the trades are directionless trades.
31,600 Rs in brokerage in 8 months is more than enough experiemnts for me , and i am done with this directionless trades in bank nifty . :relieved:

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29

Hi @adityaparakh

Sorry, I think I should have answered it yesterday. Woke up late, so here is the first thing I am doing this morning

I am assuming you are looking at Bank Nifty with 4Jan expiry.

I would not trade this looking at Delta. I would rather ask myself

“Can it go to 25600?
Can it go to 25200?”

And then take the trade.

Everything below this line is for academic interest

To answer your question on delta neutrality, this is what you should do, i a weekly option scenario.

If you are just doing two options, you dont need to do any delta calculation. Just do equal distance.

First, calculate the IVs of 3 options. Now, take a black scholes model. Price the options using the same IV for all options or different IVs of options. Find out their individual delta. And add them up after multiplying with lot size.

I am going with days to expiry 1 and IV as 15 in your example

Here the delta of 25600 is 0.12 (Price 12.9)
Here the delta of 25200 is -0.18 (Price 20)
Here the delta of 25100 is -0.08 (Price 7.5)

So if you have two 25600 calls and 1 lower put each the delta is .12*2-.18-0.09 = 0.03

On thousand lots it will give you 3 delta. Unimportant

In your example, if we use market IVs though (15,15,16.2), this picture changes
Delta of 25600 = .12
Delta of 25200 = .18
Delta of 25100 = 0.1

SO again 2:1:1 gives
.24-.18-.10 = -0.04 delta, gives you negative 4 delta on thousand. Unimportant

1 Like
30

Thanks @Abid_Hassan ,

What I was trying to ask whether it is worthwhile to calculate the delta for weeklies.
Hence , put that image as a simpler and more practical way to take a balanced position.

Since , this is specific to Intraday and not holding to expiry.
“Can it go to 25600 ?” would be correct question if holding till expiry.

I shall work on this a bit and trouble you again soon. Thanks once again for your patient efforts.

31

Bro, on expiry day market open open mein do directionless option trading with 3min chart, it wud work.

32

Damn, that’s like an intensive masters course in Weekly Banknifty experiments.

33

i am also doing intraday banknifty straddle and strangle.what do you do when market start moving with strength that cause all profit to turn into losses.any remedi for that??

34

short straddle or straddle ? assumnng you are doing short starddle
best thing is booking stop loss … i usually hedge for intraday but that seems to be counter productive

35

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For more feature requests / feedback you can drop a mail to [email protected].

1 Like
36

Well overall , thats what seems to be happening.
Many days of profit is wiped out , with one large move.

37

Hi @adityaparakh,

I am new to options selling and have been going through this thread from a few days and observing the Bank Nifty Options daily movement related to the short strangle based on calculated weekly Future Spot Price.

Wanted to check with you if you are currently using this strategy and what are the results? Is there any modification you had to do over the last few months?

Sorry everyone for opening an year old thread again.

Thank you in advance!