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Kevlar2 trade and Vega risk

Discussion in 'Options' started by Murphy Tan, Aug 18, 2016.

  1. Murphy Tan

    Murphy Tan Well-Known Member

    Hi, this is a question to kevlar2 traders. I did a backtest of the kevlar2 trade during Dec 2014 and found that my SPX position lost quite a lot of money in 1 day. I don't quite understand why this is happening and hope someone could help me. The day in question has these greeks:

    1. delta - 13.09
    2. gamma - -0.14
    3. theta - 39.90
    4. vega - 184.38

    After one day, these are new greeks.

    1. delta - 7.32
    2. gamma - -0.37
    3. theta - 34.95
    4. vega - -138.71

    The following day has an upward move of 2.89SD and since my delta is positive, I thought I must lost money through vega. Was I managing my vega risk properly? The T+0 line doesnt seemed too correct as well.

    Btw I'm using OptionsNet Explorer and set the configuration to use the volatility surface so that my greeks are close to my broker (I'm using IB). Am I doing the right thing?

    I will be most grateful if someone could point out my mistakes!


    Attached Files:

  2. AKJ

    AKJ Well-Known Member

    Looks like your matrix has some bad prices. In the second day, your 1950 put shows a price of $9.80, which is significantly higher than the option directly below and above it. Also, it looks like you have a trade in there between the two days. Not sure how this may be affecting the P&L, but its not an apples-to-apples comparison.
  3. Murphy Tan

    Murphy Tan Well-Known Member

    Hi Andrew, thanks for your kind comments. Now you mentioned it, indeed it looks weird to me that the 1950 option's pricing is so much higher than the previous strike. In your opinion, do you think it's a faulty price by OptionsNet Explorer in their backtesting?

  4. AKJ

    AKJ Well-Known Member

    No idea. I don't use ONE. It might be bad data from the data provider. It might be something in your settings.

    In OV, you can choose different settings for 'Mid'. I prefer to use a setting that only incorporates the bid and ask, and never the last trade price, because some of these options trade infrequently.

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