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IWM/RUT Combo

Discussion in 'OptionVue Forum' started by MattW, Oct 9, 2015.

  1. MattW

    MattW Moderator Staff Member

    Hi all,

    I'm trading the M3 small size to start, so just using one RUT butterfly and one DITM IWM call. Is it possible to get an accurate model in OV? I asked the rep and he said that the system can't beta weight a portfolio, but maybe I asked the wrong question. Trying to set up my current position, and not seeing the hedge on the RUT chart. Anyone else having this issue? What's the workaround? I tried modeling 10 IWM butterflies against the 1 RUT butterfly in TOS, and the pricing was totally different (which then led me down a short arbitrage hole until I remembered what happened last time I thought I spotted an arbitrage opportunity - it was ugly).
     
  2. James H

    James H New Member

    [​IMG] OptionVue7’s Analyze graph will only include 1 asset at a time. The Status screen will show an overall portfolio delta and theta. If you set up an account with just the RUT and IWM trades in it,

    You can use the Status screen to see your combined position delta and theta based on your chosen beta/delta base.


    You can also use the IWM matrix and multiply your RUT positions by 10 and enter them on the IWM matrix so that both positions are in one matrix. Then you can have a virtual (not exact because the strikes don’t exactly correlate) combined position graph using Analyze.


    [​IMG]
     

    Attached Files:

  3. GreenZone

    GreenZone Well-Known Member

  4. Capt Hobbes

    Capt Hobbes Well-Known Member

    Also note that when translating a RUT option in that 10x model to an IWM option in the real trade, the best match (closer greeks) for a RUT option with a strike X is an IWM option with a strike X / 10 - 1. If you like a trade with a 1080 RUT call, a 107 IWM call is what you want. It may not be very important for the main "delta generator" call in M3 because deep in the money the delta is not that different even if you are off by a strike. But if you do adjustment verticals or upside butterflies in IWM, the greeks will be quite different if you simply do X / 10 without stepping down a point.

    This translation error (it's there even if you step down a point, just smaller) is also a reason not to model the other way, that is faking a RUT butterfly with 10 IWM butterflies. You'd start off with the wrong greeks for that butterfly and then multiply those errors by 10. The butterfly is the "lead actor" in this position. It's better to model it precisely, even if in 10x size, and fake the call, than the other way around.
     
    GreenZone likes this.

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