Straddle Daily Time Decay Calculation / Profit Range - How ?

[aces27]

Hello ,

Would like to be able to calculate the Breakeven points of a Short straddle. End-of-Day.

Say Bank-Nifty is at Spot 23100 , 930AM.
And 23100-06-Jul-CE : 150 sell
And 23100-06-Jul-PE : 150 sell

Usually for straddles , we calculate the break-even-point as Strike +/- (SumofPremiums).
However that is at expiry.

I wish to know how to calculate , the range within which a short straddle would be profitable.
Say 23100 - x to 23100 + y. ?
There is some time decay during the day.
If market up , call goes up - put goes down. WhatExtent ? both loose timeValue.
If market down , call goes down - put goes up. WhatExtent ? both loose timeValue.

How do we use Delta or Theta for this calcualtion.
It may not be perfect , but how do we get an idea.
Where do we get the theta information. And how to use it to determine the
breakeven points.

 

[Shiv12345]

Hello ,

Would like to be able to calculate the Breakeven points of a straddle. End-of-Day.

Say Bank-Nifty is at Spot 23100 , 930AM.
And 23100-06-Jul-CE : 150
And 23100-06-Jul-PE : 150

Usually for straddles , we calculate the break-even-point as Strike +/- (SumofPremiums).
However that is at expiry.

I wish to know how to calculate , the range within which a short straddle would be profitable.
Say 23100 - x to 23100 + y. ?
There is some time decay during the day.
If market up , call goes up - put goes down. WhatExtent ? both loose timeValue.
If market down , call goes down - put goes up. WhatExtent ? both loose timeValue.

How do we use Delta or Theta for this calcualtion.
It may not be perfect , but how do we get an idea.
Where do we get the theta information. And how to use it to determine the
breakeven points.

Hi, this seems to be interesting topic since I have been studying & tracking behaviour of Bank Nifty weekly options since past few months.

From what I have observed most of time is that:-

1. On every Wednesday, Bank Nifty straddle pair of that current week expiry should cost around Rs. 150 approx around 2 PM in the afternoon. This is only possible when VIX is relatively low around 11% to 12%. One should take position only around 2 PM whenever both legs of straddle i.e. PE & CE are available at almost same equal cost (say 75 + 75). This normally happens around 2 PM only. It gives atleast one such chance.

2. But one has to be really sure if the Bank Nifty would move approx 100 points either side or not. It is definitely risky. But if it moves 100 points on any side, it will produce profit. Normal target of straddle pair should be Rs. 175 to 180 (for example 145+ 30) before closing i.e. 3:30 PM. Main action begins only after 2:30 PM. The only condition is that it should move some 100 points. Even if it does not move, there would not be much loss. In that case, the pair cost can come down to 140 or so.

3. With Bank Nifty straddle, one has to be extremely vigilant on premium erosion. When the VIX is high, DO NOT take position, most probably it is a trap by optionwriters.

4. Do NOT carry forward straddle position on Wednesday closing. Always make sure that you EXIT before Wednesday closing. Because on Thursday morning, it can shed premiums at a quick pace.

This is what I can suggest. After so many months, I could only decode the trade setup of all Wednesdays (especially 2nd half). I have no idea about Fridays, Mondays, Tuesdays (let alone Thursdays). I am still trying to decode other days.

Any views or opinion? Thanks.