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Adjustments and net pnl of the trade

Discussion in 'Options' started by Venrcew, Sep 7, 2016.

  1. Venrcew

    Venrcew Well-Known Member

    Have some qns regarding options adjustment. There are traders adjust their trade adding debit or credit sprd calls and puts in order to achieve their wanted greeks. And these adjustments during the trade duration would involve closing trades and realize profit or loss. Qns is do they hack care about these adjustments realize pnl during trade as long as they achieve the necssary greeks? How do they ensure they are making profit whn they close out the entire trade with all those costly adjustments during trade? Correct to say the profit or loss of closing the entire trade have to deduct those adjustment trades cost in order to derive the net pnl of the trade?
     
  2. ACS

    ACS Well-Known Member

    A good option analysis program will have the ability to keep track of closed positions and include them in the total P&L of the trade.
     
  3. status1

    status1 Well-Known Member

    It can also be done manually in TOS by adding the trade back in as a simulation
    That's what I do with the other accounts I have outside of TOS since the other accounts don't have risk analyzer
    It would be very difficult if not impossible to trade complex option strategies and make adjustments without the risk graph
     
  4. Venrcew

    Venrcew Well-Known Member

    Know the softwares would allow dealing with the trades but arent the traders concern about the cost of the adjustments vs getting the greeks Say a credit sprd and market move down and trader buy 10 debit sprd to hedge and market rally back Those debit sprd would be close for a loss depending on how far the market rally. Greek are achieve or hedged but so is realize pnl. Correct to say trader close out the entire trade at a profit less then the loss of debit sprd the trade is consider not profiting?
     
  5. status1

    status1 Well-Known Member

    A simple credit spread is a directional trade so you are not hedged to begin with so buying a debit spread after the stock has moved down you are just chasing the market and of course you will loose money that way
    It's better to start out with a hedged trade like a butterfly type trade that way you are only making small changes and preferably none and let the market bounce around as long as it's under the tent or nearby If you have to make an adjustment with 10 debit spreads than you have either a large position or the market has moved a lot without any hedging
     
  6. Venrcew

    Venrcew Well-Known Member

    Say you roll your options to another strike price as a adjustment and the cost is 1. With the trade close out does the close out trade profit has to be greater than the adjustment cost in order to generate a profit?
     
  7. status1

    status1 Well-Known Member

    It depends on what was your original position and how much you paid or got a credit for and where you closed the trade
    You don't know what is your final p/l is until you close the trade because that all varies based on the underlying movement
    If you buy a put lets say for $1 and it goes down and later on sell it for $2 and also buy another put for $3 that will cost you $1 to make the adjustment but you already locked in $1 gain by selling the original trade
    So you don't know what is your final p/l until you sell the put or expires
    So if you close the trade by selling the put at $3 you still have the $1 gain from the adjustment
    If you close it by selling it for $2 you will loose $1 from closing the trade but with the $1 gain from the adjustment your p/l is 0
    If you let it expire you will loose $3 and with the $1 gain your total p/l is $2 loss
    Of course this does not take into account the commissions you have to pay along the way
    I hope that answers your question
     

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