Update on Option Structure initiated on 2 June 2020

21 June 2020

Summertime - Summertime! Can you dig it!


– – –  UPDATE ON:  Strategy (using ICE Brent Options):

1. Sell 1x September 30 Put (expiry:  28 July 2020); and

2. Buy 1x December 55 Call (expiry: 27 October 2020),

Initial Net Premium = Zero; net theta = positive 4.0; net vega = positive 2.6.

Current Net Premium = 0.75 in favour of the December 55 Call (closing option prices taken from

Market is now closed for the weekend with Spot Brent closing at or around 42 dollars/barrel.

The current net theta position has turned negative (= 0.41).  In other words, the position is now incurring “daily rent”. Additionally, the decay in the 30 Put will begin to slow down as it gets closer to expiry and remains a very low delta option (i.e. its usefulness is no longer).

The main reason for this is simply that brent has been remaining above 40 on a consistent weekly close basis since the beginning of june.  This resulted in the September 30 Put going down to 7 delta (further out-of-the-money) and the December 55 Call moving closer to at-the-money (currently 35 delta). I take this to mean a signal to “roll-over the position” has arrived.  In other words, I would unwind this position here and use the proceeds to finance the roll over position.

The question now is whether the conditions that existed in early June still exists today – namely, the incredible implied volatility bias against call options; as well as the high general implied volatility levels.

Upcomming post:  long-term positioning and goals – rolling over to a new calendar risk reversal position in ICE Brent Options.


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