Capturing Theta - A Delta Neutral Theta Decay Strategy - Experimentation on NIFTY
This experiment is recorded for the purposes of checking the principle of capturing theta decay if possible by making a Delta neutral strategy.
The experimental index taken up for this purpose is NIFTY which is trading around 6180 points per unit as of close 29th Nov 2013 (November month end close).
The various Option Greeks for this NIFTY index are observed as below for a 6100 put and a 6400 Call for December 2013 Option expiry
NIFTY : Quoting around 6180 as of close of November 29th 2013:
SALE OF THIS STRATEGY:
PRICE VOL
ATILITY Delta Theta Gamma Vega
6400 CALL 65.60 20.70 0.32 -3.00 0.00 5.75
6100 PUT 87.95 22.64 -0.35 -2.03 0.00 5.88
By writing a 6100 PUT and a 6400 call we gain a Theta of 5 Rs approximately per day.
DECAY PER DAY: 5 Rs. Delta is 0.03 paise Neutral;
10 day decay = 50 Rs. To make 50 Rs. As delta combo is 0.03 paise to make 1 Rs Delta it has to move by 33 points so to make Rs 50 gain index has to move by 1500 points ? Is this possible in 10 days? So selling this strategy in 10 days should give approx 2500 Rs. ?
Assuming the above strategy is executed on 2nd December 2013 by collecting premium of 65+85 = 150 Rs approx. and 10 days down the line we should be in position to close out this position at Rs. 100 approx.. This would give 50 Rs gain which for a lot of 50 gives a gain of Rs.2500/-
So this article is written down here to see update on 12th Dec 2013 how it works out.
cheers
zilebi
This experiment is recorded for the purposes of checking the principle of capturing theta decay if possible by making a Delta neutral strategy.
The experimental index taken up for this purpose is NIFTY which is trading around 6180 points per unit as of close 29th Nov 2013 (November month end close).
The various Option Greeks for this NIFTY index are observed as below for a 6100 put and a 6400 Call for December 2013 Option expiry
NIFTY : Quoting around 6180 as of close of November 29th 2013:
SALE OF THIS STRATEGY:
PRICE VOL
ATILITY Delta Theta Gamma Vega
6400 CALL 65.60 20.70 0.32 -3.00 0.00 5.75
6100 PUT 87.95 22.64 -0.35 -2.03 0.00 5.88
By writing a 6100 PUT and a 6400 call we gain a Theta of 5 Rs approximately per day.
DECAY PER DAY: 5 Rs. Delta is 0.03 paise Neutral;
10 day decay = 50 Rs. To make 50 Rs. As delta combo is 0.03 paise to make 1 Rs Delta it has to move by 33 points so to make Rs 50 gain index has to move by 1500 points ? Is this possible in 10 days? So selling this strategy in 10 days should give approx 2500 Rs. ?
Assuming the above strategy is executed on 2nd December 2013 by collecting premium of 65+85 = 150 Rs approx. and 10 days down the line we should be in position to close out this position at Rs. 100 approx.. This would give 50 Rs gain which for a lot of 50 gives a gain of Rs.2500/-
So this article is written down here to see update on 12th Dec 2013 how it works out.
cheers
zilebi
