I am going to show some specifics of working with position builders.
First I should say some aspects to know when you work with position builder:
- This tool doesn’t know the future, it just calculates the possible distribution of P&L in the future for the mastered position.
- Its calculations are based on formulas and they can not include changes in Implied volatility that can drastically move a whole chart line up or down.
- if you want to simulate a position very close to real, first check the prices, because it can give you unreal prices much better.
So, I started this Short Put Spread, when we bought a put option with a lower strike and sold a put option with a higher strike.
I created simulations with 10 bought Puts of BTC with Expiry on Oct, 29 and Strike 26000, and 10 sold Puts of BTC with Expiry on Oct, 29 and Strike 28000. You can see positions in Image 2.
You can see the P&L chart in Image 1. If we really buy these positions for current prices, we have a chance to earn a maximum of 0.4 BTC or lose 0.4 BTC.
We spent on buying 10 Puts 26000 for 0.0119 each, 0.119 BTC and we received a premium for sold options 10 Puts 28000 for 0.0512 for each, 0.512 BTC. So, in total, we spent 0.393 BTC. It’s the maximum profit we can earn in the future. The sold options create a risk in case of price goes down. This risk is compensated by the bought option because the bought option has a lower strike, its gamma is 3 times bigger than the gamma of 28000 Puts, and its delta will increase faster than the delta of 28000 Puts that are in the money. So, when a price reaches 23000, the losses will slow, but they will not stop, they can increase further in case of a very big sell-off.
For now, this position creates the opportunity to earn 0,393 BTC in case of price increases to 31000 and to lose at least 0.32 BTC if the price goes down to 25000. But with a price of BTC 25000, this position will cost not 0.393 BTC in total but around 0.07 BTC in total.
Let’s try to simulate a position that can be the same but with very low cost.
Ohh we did it. This is a position with the current cost for all positions is only 0.034 BTC but in reality, we will have a price impact and the total cost of the position may come to 0.08 BTC but in any case, it will be very low compared with the first example.
If you really looking for a long position here with limited risk, this position is very good. In case of an increase above 30000, you will earn a maximum of 0.72 BTC with an initial cost of only 0.08 BTC. The risk if the price goes to 25000 will be only 0.04 BTC additionally and 0.07 BTC with a price of 24000. And the risk will be 0.2 BTC with a price of 20000. It looks pretty good.
In USDT you can earn 18700 USDT with spending on a position of around 2000 USDT and keeping a reserve for risk of 4000 USDT and a margin of around 6000 USDT. The same profit you can earn if the price goes to 31000, buying here a spot for 3.5 BTC spending 91000 to buy, and having a risk of around 20000 USDT if the price goes to 20000. Compared with a spot position, you will get less risk and the same profit and lower costs on position.
Be careful in options if you are new to trading and the derivatives because of the risk of gambling if you don’t have a deep understanding of the markets and options pricing.
#notallowed #options #deribit #putspread