Options trading part 6: practice bonus

You have learned in school, on television, or YouTube how to visualize atoms, protons, neutrons, electrons, etc.

This model is entirely inaccurate, yet we use it because it helps us visualize the specifics of these abstract subjects.

Consider everything in this article to be an oversimplification to assist you with more advanced reading about options trading

https://www.calculator.net/percent-calculator.html?c3par1=1154.70&c3par2=1535&ctype=3&x=87&y=10#pctdifference

As delta decreases, so does the premium.

Checking the premium of the option contract for strikes with higher strike prices on the upside reveals that it is much cheaper.

23000 - 20630 = 2370
https://www.calculator.net/percent-calculator.html?c3par1=20630&c3par2=23000&ctype=3&x=93&y=24#pctdifference
  • outcome 1: bitcoin price falls by 17%
  • outcome 2: bitcoin price moves by 0%
  • outcome 3: bitcoin price increases by 17%

Delta PNL

Let’s refresh our memory again from part 2 of this options trading article series

Every options contract has a delta

between 0 and 1

or 0 and -1

Current price of bitcoin: $20630Call option expires June 24 (within 7 days)Strike price: $23000
delta: 0.24 Δ
theta: -62
premium: $486
Vega: 10.41
delta * change in price
0.24 * 3507.1 = $841.704
delta * absolute change in price = delta PNL
0.24 * -3508 = −$841.92

As the underlying moves, the delta moves because of Gamma.

Therefore, we must determine how much the delta will change when the underlying price fluctuates by $5792.9$3508

strike price - current btc price (underlying)
$23000 - $20630 = 2370
$23000 (strike price) - 2370 = $20630
(0.24 + 0.48) / 2 = 0.36 Δ
average delta Δ * price move = Gamma PNL 
0.36Δ * 3507.1 = $1262.556
$23000 + 3508 = $26507.10
(0.24Δ + 0.06Δ) ÷2 = 0.15Δ
average delta Δ * difference in move = Gamma PNL 
0.15Δ * −3507.10 = -$596.207

Theta

Now we need to consider “theta” or “time decay.”

Current price of bitcoin: $20630Call option expires June 24 (within 7 days)Strike price: $23000
delta: 0.24 Δ
theta: -62
premium: $486
Vega: 10.41

In addition, the time decay accelerates as your option contracts approach “At the money” (ATM)

-60 * 7 = −420
Current price of bitcoin: $20630Call option expires June 24 (within 7 days)Strike price: $23000
delta: 0.24 Δ
theta: -62
premium: $486
Vega: 10.41
days to expiration - vol points loss
10.41 * -13 = −135.33
Gamma PNL:  $1262.65
Time decay: -$420
Vega loss: -$135.33
----------------------
Combined: $751.65

Exchanges

Deribit

Deribit is the largest cryptocurrency exchange for trading options. Deribit has European-style cash-settled options.

Sign up on Deribit and receive 10% discount on fees for trading futures & options: https://www.deribit.com/reg-572.9826

Trading platform: Delta exchange

Another new exchange called “Delta exchange” has options trading for multiple altcoins. You could use these options to hedge your portfolio for altcoins. Here we can see the options chain for Avax.

If you’re seeking to signup and want a 10% discount

You can use my referral link

https://www.delta.exchange?code=medium

They also have a great tool to model your options position.

ByBit exchange

ByBit recently offers options trading for bitcoin & ethereum. If you are trading on ByBit, you can use options to hedge with options.

ByBit Options (Discount on fees and $100 deposit bonus): https://www.bybit.com/register?affiliate_id=6776&group_id=1653&group_type=1

Final words

Now you can see how each greek can impact our PNL and how changes in the options greeks can severely change the outcome of our PNL.

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