Some questions on IC, calendar spread and whole portfolio delta

[chemfire 0]

Hello everyone, I have some general newbie questions but might be also interesting to senior traders

1. Besides earnings plays, we also long IC to capture dropping IV and time decay; long calendar spread to be benefited from accelerating time decay and rising IV. Seems like volatility is the key element of our decision to go long IC or calendar. Is there a certain criteria to look for? (like how much VIX). I know Kim normally do 25 delta IC, and look for reasonable credit. But how to decide the entry for calendar spread?

2. I'd like to quantitatively calculate whole portfolio delta, since when I have lots of trades with different sizes, it's hard to see whether I am delta positive or negative. At first, I simply add up size* delta for each trade, for example, if I have following two trades in my portfolio

contract underlying price size delta size*delta

CREE straddle 25 4 0.0752 0.3008

RUT IC 788 1 -0.045 -0.045

then total delta is 0.2558, so I am now delta "positive". The assumption here is that both CREE and RUT will move same dollars in the same direction. But when CREE move $1, RUT would most likely move more than that, since it has much larger price.

If we assume both stocks move 1% in the same direction then:

contract underlying price size delta size*delta*price/100

CREE straddle 25 4 0.0752 0.0752

RUT IC 788 1 -0.045 -0.3546

in this case, total "delta" is -0.2794, so delta negative.

I feel that 2nd scenario makes more sense to me to gauge our portfolio delta, though both assumptions have flaws. I'd like to hear advices from you..

Thanks

[tjlocke99 18]

Hello everyone, I have some general newbie questions but might be also interesting to senior traders

1. Besides earnings plays, we also long IC to capture dropping IV and time decay; long calendar spread to be benefited from accelerating time decay and rising IV. Seems like volatility is the key element of our decision to go long IC or calendar. Is there a certain criteria to look for? (like how much VIX). I know Kim normally do 25 delta IC, and look for reasonable credit. But how to decide the entry for calendar spread?

2. I'd like to quantitatively calculate whole portfolio delta, since when I have lots of trades with different sizes, it's hard to see whether I am delta positive or negative. At first, I simply add up size* delta for each trade, for example, if I have following two trades in my portfolio

contract underlying price size delta size*delta

CREE straddle 25 4 0.0752 0.3008

RUT IC 788 1 -0.045 -0.045

then total delta is 0.2558, so I am now delta "positive". The assumption here is that both CREE and RUT will move same dollars in the same direction. But when CREE move $1, RUT would most likely move more than that, since it has much larger price.

If we assume both stocks move 1% in the same direction then:

contract underlying price size delta size*delta*price/100

CREE straddle 25 4 0.0752 0.0752

RUT IC 788 1 -0.045 -0.3546

in this case, total "delta" is -0.2794, so delta negative.

I feel that 2nd scenario makes more sense to me to gauge our portfolio delta, though both assumptions have flaws. I'd like to hear advices from you..

Thanks

chemfire,

Welcome.

I am not sure what trading platform you use, but some of the popular broker's tools will calculate your portfolio delta. I know thinkorswim and IB have tools to do it. For IB (Interactive Brokers) if you use the Webtrader and go to the Risk Navigator you can get the greeks on your entire portfolio.

Best,

Richard

[Kim 7,499]

For calendars, I'm looking for low VIX. How low? 16-17 would be definitively considered low. But I also want to balance the portfolio, like I did yesterday with the SPY calendar, to partially hedge the RUT IC.

IB can show you the total dollar delta. But I don't look at it, I just trade similar allocation. So for 10k account for example, you would buy 1 RUT IC and 4 $2.50 straddles.

[chemfire 0]

Thanks Richard and Kim, those information are helpful