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Hedging SPX with Teeny(s)

Discussion in 'Options' started by Neil, Aug 11, 2017.

  1. Neil

    Neil Member

    If one wanted to hedge a portfolio that includes numerous ongoing trades in various expirys from 18-Aug to 20-Oct what value would you think appropriate in the TOS Analyze Tab "Vol Adj" dialog box?
    I'm looking at a 15-Sep 1650 long Put (cost $0.55) and if I assume a 15% drop in the market (SPX dropping from 2447 to 2080) between now and next Wed (16-Aug) with the VIX currently at 15.4 (TOS rounded) do you think a 100% increase in volatility is realistic or appropriate (VIX increasing from 15 to 30)? When I look at the PnL of buying (5) 15-Sep 1650 Puts (total cost $275) with Vol Adj = 100% the TOS projected PnL on 16-Aug is +$72,470. Is that realistic? (50% Vol Adj gives a project PnL of $30,112.)
    Any thoughts?
    upload_2017-8-11_8-45-0.png
     
  2. Paul Demers

    Paul Demers Well-Known Member

    Hi Neil
    The percent number is actually just the amount of vol points that you want it to change not a percentage of the current vols. So if you think it will go to 30 then that number should be 15 not 50. With that said I would think the vols could hit 50 so I would use 35.
    The only problem with putting on a teeny today is that in the SPX I found that the same delta teeny is 75 points lower than it was on Wednesday.
     
    Last edited: Aug 11, 2017
  3. Marcas

    Marcas Well-Known Member

    I think that Neil has it right regarding TOS.
    100% increase in VIX is definitely possible. 1 month it is a lot of time for that especially if you think of 15% drop in SPX. If 14.5K gain on single long put is possible? - I think yes.
    I'd say that with 15% drop 75 point difference in same delta put is no issue at all. Problem is that if we don't have 15% drop both puts, org and this 75p lower, are waste. You can limit loses by converting them to Vert, but you still need decent drop in near term - they loose value very quickly.
     
  4. Marcas

    Marcas Well-Known Member

    Ups. I answered after only reading Neil's post without looking at picture. Paul is right about setting values on Analyze Tab.
     
    Last edited: Aug 11, 2017
  5. Neil

    Neil Member

    Thanks Paul (and Marcas) for responding. I've run into similar issues with TOS before. Their cryptic labels on columns, or rows, or buttons aren't entirely clear and sometimes the results don't pass the "smell" test but I couldn't find anything in the documentation that clearly explained what it actually meant. Thanks again.
     

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