Forum

Policies – please read!

  • Everyone can read posts, but to start a new topic or add a reply you’d need to register. To create an ID, please verify your email address. You will get a link at that email address and you can then pick a password.
  • Be courteous to others. Treat others like you like to be treated. Discuss the issues. No ad-hominem attacks!
  • It’s OK to include external links if they are relevant. But please avoid spamming! Please no affiliate links.
  • Before starting a new topic, please check if that question/topic has been discussed before already and add to that discussion instead of starting a new topic.
  • If you’ve written a cool blog post that you want to share with others please post this in the “Self-Promo” category only!
  • Please read the usual Disclaimers and the Privacy Policy!
  • The forum policies may be amended in the future!
Notifications
Clear all

Correct way to asses risk


norciom
Posts: 3
Topic starter
(@norciom)
New Member
Joined: 4 months ago

Given an index X and a separate index Y where the value of X is about 10 times the value of Y, is a put on on X the same as 10 puts on Y at the same delta?

 

For the index X, are 3 puts at 1 delta the same as 1 put at 3 delta?

 

When aiming for consistent return, if it more safe to have more puts at lower delta or less puts at a higher delta as volatility decreases?

4 Replies
earlyretirementnow.com
Posts: 231
(@earlyretirementnowcom)
Member
Joined: 6 years ago

Given an index X and a separate index Y where the value of X is about 10 times the value of Y, is a put on on X the same as 10 puts on Y at the same delta?

Yes!

For the index X, are 3 puts at 1 delta the same as 1 put at 3 delta?

No! 1 put at 3-D is not as far out of the money as the 1-D puts. So, you trade off the probability of a loss with the magnitude of a loss.  1 put with 3D loses more often but not as severely as the 3 puts at 1-D. There is no correct answer, you have to pick whatever you are comfortable with.

 

 

 

Reply
2 Replies
norciom
(@norciom)
Joined: 4 months ago

New Member
Posts: 3
Posted by: @earlyretirementnowcom

Given an index X and a separate index Y where the value of X is about 10 times the value of Y, is a put on on X the same as 10 puts on Y at the same delta?

Yes!

RUT is about 1/2 of SPX and the premium for RUT options is about 1/2 as for SPX. When a loss does occur on the other hand, will it be double the magnitude on SPX so total loss is similar to the two contracts loss on RUT?

Are all things well balanced/no free lunch in options trading?

Why do you trade 10 SPX contracts and not 2-3 NDX contracts?

Reply
earlyretirementnow.com
(@earlyretirementnowcom)
Joined: 6 years ago

Member
Posts: 231

@norciom Correct, there's no free lunch.

I trade SPX because it's the most liquid and the S&P 500 is a broader index.

Reply
E Trader
Posts: 28
(@e-trader)
Eminent Member
Joined: 9 months ago
Posted by: @earlyretirementnowcom

Given an index X and a separate index Y where the value of X is about 10 times the value of Y, is a put on on X the same as 10 puts on Y at the same delta?

Yes!

I think this is only true if the IVs are the same (and assuming deltas and DTE are the same).  Here is an interesting piece expanding on this idea.

https://www.tastytrade.com/shows/market-measures/episodes/comparing-strategy-risk-08-13-2021

Indexes are more apples to apples than an index vs stock, but the IV is still important in my opinion.  The NDX is more volatile than the SPX for example.

Reply
Share: