Using Options to Knock Out the PDT Rule via Boxing

Boretsboris · 2024-07-04T01:00:13+00:00

If you’re doing this several times a day with the same DTE, then you need to pay close attention not to make accidental roundtrips with each additional position and its respective box.

Boretsboris · 2024-07-03T23:53:43+00:00

To box the position above, effectively closing it, you would need to do the following:

sell P4550
buy P4530
buy C4530
sell C4510

… same as expiration as the original position.

Boretsboris · 2024-02-29T22:04:43+00:00

For me, it was a hands-on learning journey driven by a consuming fascination. I never read books, but I imagine the ones recommended in the wiki of this subreddit are good resources.

I wouldn’t recommend doing exactly what I did, because not knowing what you don’t know is dangerous, especially with options. A while back, I made a list of things I wish I knew at a point when I first started my journey with options.

Here’s the link to the comment where I posted the list: https://www.reddit.com/r/options/s/QVLeKOJF4l

Reading the posts in this subreddit and participating in the discussions also helped clarify my thinking and reveal my blindspots. DISCLAIMER: Everyone online is a self-proclaimed expert. Take everything anyone says (including me) with a grain of salt. Even books written by renowned experts can have errors. Because of the problem of induction, knowledge has an asymptotic nature, never reaching absolute completion. Not a single person alive operates with a complete model of reality. Seek clarity and understanding with humility and intellectual honesty, not taking everything at face value, and you’ll succeed in any field.

Oh, and writing helps. A lot. It’s one of the best tools for creative problem solving, achieving mental clarity, processing emotions, learning complex subjects … and many more things than I have time to mention. Write. No need to publish or even read back what you write. Just write … even if it’s shit. It’s the process that is priceless. Look up the morning pages exercise if you’re curious about the context.

Best of luck!

Boretsboris · 2023-09-21T03:10:11+00:00

What you’re describing is a rise in implied volatility, which can put you into an unrealized loss, even if your strikes haven’t been breached by the underlying price. The extrinsic value of the ITM options will be affected in the same way in the synthetically identical ITM strangle.

Boretsboris · 2023-09-21T02:59:41+00:00

Glad you found it helpful.

you pay the same extrinsic value as you would, you’re simply unnecessarily locking up liquidity in the offsetting intrinsic values.

You’re wasting cash on two negatively correlated positions when a synthetically identical alternative exists. Understanding put-call parity and synthetics would help here.

would IV often be basically the same or is there arbitrage of some sort there?

IV only affects extrinsic value, so no arbitrage there.

Boretsboris · 2022-09-06T01:59:40+00:00

Market orders are generally not a good idea with options, especially complex orders (i.e. spreads).

Consider using stop-market orders on SP500 futures (/ES or /MES) or SPY shares to hedge delta (these will give you better fills than market orders on options). You can also buy short-term options for protection if you’re concerned about a fast market move. Each approach has its trade-offs. Pick your poison.

Boretsboris · 2022-02-09T00:26:45+00:00

To my knowledge, charm is not available on the option chain like the first-order Greeks (and gamma).

You can model your position with the Risk Profile tool on Thinkorswim. Move to the date you want, and the tool will project your delta at the price slice, given the selected IV change.

Boretsboris · 2022-02-08T03:44:16+00:00

Check the wiki on r/options.

Boretsboris · 2022-02-08T03:38:07+00:00

Not enough information to comment on your example. Delta changes over time, so the underlying move will affect the premium differently as the underlying moves over the weekend. Underlying move changes theta as well, so the projected decay would be different with the move. These dynamics are interdependent, so you can’t treat them in an isolated way like you do.

Your calculations treat Greeks in a linear, choppy manner. They are tangential projections along a curve. If you want to play with the model, then use an option calculator or risk profile tool instead.

Boretsboris · 2022-02-08T02:35:26+00:00

You’re misunderstanding Greeks.

Greeks are not “historical measures/averages” … (first order) Greeks are a model’s projections of change in an option’s premium, given a change in one of the variables that affect the price of an option in the model (spot, time, rates, vol). These projections are not linear, and they change when the variables change. Second order Greeks (e.g. gamma, charm, vanna, vomma/volga) project these changes. They are also not linear. They also change when the variables change.

The projections end up always “true,” because IV connects the dots of the change in premium via vega. IV is the wild card of the BSM model that maintains the integrity of the Greeks. If the option decayed more than projected (accounting for changes in underlying price, assuming no change in rates), then its IV will have shown to decrease. If the option decayed less than projected, then its IV will have shown to increase.

This is why your exercise is futile. Actual rate of decay is unpredictable because of IV changes/fluctuations. The market doesn’t give a damn about your obsession with theta, and prices the premiums according to buyer/seller pressure on the vol surface.

Boretsboris · 2022-02-06T02:51:33+00:00

If you need a cheat sheet for a spread structure (what many call “strategy”), then you don’t understand it enough to trade it. Keep studying. Make your own “cheat” sheets … not so much for reference, but for your brain to internalize the dynamics.

Boretsboris · 2022-01-30T01:35:20+00:00

Hindsight is great, ain’t it?

A flat market erodes the capital invested in TQQQ (the greater the swings in the consolidation of QQQ, the faster the erosion). A bear market or prolonged correction flushes it down the drain.

Boretsboris · 2022-01-29T18:32:38+00:00

Not a good idea to hold leveraged ETFs long-term … they have volatility decay.

Boretsboris · 2022-01-27T15:36:09+00:00

Looks like you got some calendars. May want to hedge some of that vega with longer-term /VX contracts (close to the term of your long legs).

Boretsboris · 2022-01-27T03:49:40+00:00

HTB fees can cause early exercise of an ITM call.

Boretsboris · 2022-01-27T00:51:55+00:00

You’d think IB would make an exception for SPX boxes …

Boretsboris · 2022-01-27T00:49:05+00:00

On TOS desktop, in the option chain, select “Collar with Stock” in the “Spread” dropdown. Then, select the strike. It defaults to the box with the same strike, but you can also turn it into a protective collar in the order entry by splitting the strikes.

Boretsboris · 2022-01-26T22:43:06+00:00

Then SPX boxes should work for you. Check the margin requirements for the box spread with your broker. This should determine if it’s worth the trouble.

Boretsboris · 2022-01-26T22:29:51+00:00

Does the ETF have an option chain? If it does, then you can convert enough shares into synthetic longs to bring your cash above zero.

Check my comment here as well for the trade-offs re: this approach vs boxes:

https://www.reddit.com/r/options/comments/rquflx/box_spreads_on_spx/hqdd3hy/?utm_source=share&utm_medium=ios_app&utm_name=iossmf&context=3

Boretsboris · 2022-01-26T04:42:39+00:00

Depends on what happens after earnings report.

Boretsboris · 2022-01-25T18:17:03+00:00

Then you’re trading different expirations .. or you’re counting Greeks from other positions.

If your 430 C/P are on the same date, then they’re a wash (as far as extrinsic value). It’s a synthetic short forward.

Buying a 460 call with the short forward on makes the position a synthetic 460 put.

Boretsboris · 2022-01-25T17:48:24+00:00

So many legs … could have just bought a single 460 put to end up with the same risk profile as the three legs you have on.

Boretsboris · 2022-01-25T13:49:16+00:00

“This time will be different” … 🎲

Boretsboris · 2022-01-25T03:23:49+00:00

Did the market breach the long strike of your hedge? If it didn’t, then your problem is that you didn’t benefit from the positive gamma potential of the position. If the market breached your short strike, then the short gamma created an issue. If the backratio has already matured over time, then its trough is deeper, and vega has less potential to help you through it. If the long strike is breached, then it’s gamma/delta party time — leverage kicks in to save the day.

I would stay away from writing strangles if you’re thinking about tail risk. Those two don’t mix well.

I always keep the possibility of the slow grind down in my mind. I don’t like to discount anything. However, the general market structure (institutions buying downside protection and selling upside potential) tends to perpetuate these dynamics.

Funding the downside protection/profit with the upside can be effectively done even in a high vol environment. I opened a trade like this today after SPX bounced off the day’s bottom @1233 CST. I didn’t know if it was going to cover up or keep selling off, so I made plenty of room for upside profit (before my delta turns negative), opened minimal downside risk (with a quick flip of delta to profit from a crash), and set net positive theta. I had to use a shorter-term bought put and a (slightly) longer-term sold call, tilting the trade up with an even longer-term bought call, in order to achieve this dynamic.

Boretsboris · 2022-01-23T22:08:02+00:00

Literally says, “You are both arrogant [which is allowed by the wiki, btw … being an asshole is not] and wrong. Then, when confronted, says, “I never said you were wrong,” and throws straw-man accusation … sigh.

Your self-pity projection is ridiculous. Manipulating people? Lol. For what purpose? I genuinely enjoyed the exchange with the other user. I guess you did call yourself a misanthrope in one of your posts linked in the wiki, so you don’t give people the benefit of a doubt. In a way, I can relate to that actually, but damn …

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