Tuesday, November 20, 2012

Completed Jan High Probability Paper Portfolio

After setting up a position every other trading day in the last week or so, I finally completed the 2-month out paper trading portfolio today with a double calendar as usual. This is the 2nd option cycle for this test. I played Jan/Feb vs Jan/Mar DC's of identical strikes shown in the image below, and found the Jan/Mar DC provided about 1.9 to 2 times of the values of Greeks and cost, when compared with those of Jan/Feb DC. The main reasons I chose Jan/Mar DC are flatter P&L top and higher theta (9 vs 4.8). Note the margin requirement is $8,000 at the analyzer, while it was $6,000 for last option cycle which had similar positions.
In the two month out portfolio, the probability of expiring beyond break-even points in Jan is around 6 to 20% at the moment, even if the short options usually have delta around 0.25. This portfolio has a significantly higher probability than the front month portfolio for a trading period of 30 days approximately.

In the last cycle for December options, the portfolio ended with a small gain. But it's more encouraging in that it had reached current target of 10% profit before dropping to final closing value. This 2-M portfolio also is characterized with low maintenance efforts due to its wider profit zone.

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