Interactive Brokers Performance Profile P&L Graph
Interactive Brokers Performance Profile P&L Graph
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ginister · External communityPost link
External question — Personal Finance Stack Exchange
Author: ginister
Original post: https://money.stackexchange.com/questions/123622
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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I'm trying to decipher the following view from a trade I've made on IB. I think I'm missing something important with respect to how trading this option works.
Trade P&L
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I understand that the dotted line is today's p&l if today the underlying sat at that price. The solid line is the same thing but on the day of expiration. So what I'm not understanding is why are the lines flipping? Say if we just held the trade today (7th April in picture) our value would be +$162, and similar the next day. A few days before expiration if that was true all the time wouldn't we have accumulated $162*days held in profit? It seems to be that we're losing value to theta at the same rate in reverse.
My breakeven is ~224 so what price am I actually hoping for pre expiration? What is the dotted line telling me that I'm not understanding? Thanks in advance.
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Bob Baerker · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Bob Baerker
Original post: https://money.stackexchange.com/a/123627
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
You're buying a bearish $226/$215 put vertical for $1.08. Break even is $224.92. The risk is the debit cost and the maximum reward is the difference in strikes less the premium paid or $9.92
What you are hoping for pre expiration is that SPY drops. The sooner, the better. If it dropped to $224.92 tomorrow, you'd have about a $350 profit as compared to breaking even were the SPY to be at $224.92 at expiration.
Because the delta of the spread is less than 1.00, in order to drive both legs of the spread close to parity (very little time premium), SPY would have to drop to approx $190 tomorrow to realize anything close to the maximum value of the spread.
Here's an online spread calculator. It's not great but its graphics are much better than what you displayed in your link:
http://optioncreator.com/bear-put-spread
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: Bob Baerker Source score (net votes, not local likes): 0 Original post: https://money.stackexchange.com/a/123627 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. You're buying a bearish $226/$215 put vertical for $1.08. Break even is $224.92. The risk is the debit cost and the maximum reward is the difference in strikes less the premium paid or $9.92 What you are hoping for pre expiration is that SPY drops. The sooner, the better. If it dropped to $224.92 tomorrow, you'd have about a $350 profit as compared to breaking even were the SPY to be at $224.92 at expiration. Because the delta of the spread is less than 1.00, in order to drive both legs of the spread close to parity (very little time premium), SPY would have to drop to approx $190 tomorrow to realize anything close to the maximum value of the spread. Here's an online spread calculator. It's not great but its graphics are much better than what you displayed in your link: http://optioncreator.com/bear-put-spread
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