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#PnlExplain
Whatever options position one enters it's important to know the risks one is taking and hence where the PnL is coming from. As an example if one is taking delta-neutral strangles (say 2% away OTMs on Nifty weeklies) at market open on a Friday and
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#PnlExplain
Whatever options position one enters it's important to know the risks one is taking and hence where the PnL is coming from. As an example if one is taking delta-neutral strangles (say 2% away OTMs on Nifty weeklies) at market open on a Friday and
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within a couple of hours sees a 5pt reduction in the price of the strangle (with delta still neutral) then the PnL is coming from the following:
Vega - given this is a -ve vega/short vol position a decrease in implied vols of both the OTM options in those couple of hours
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Vega - given this is a -ve vega/short vol position a decrease in implied vols of both the OTM options in those couple of hours
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results in a positive Pnl
Theta decay - this is technically the decrease in an option price in a given period of time "keeping all other factors constant".
In all likelihood given the current vol levels, Vega would've driven the 5pt Pnl profit more than theta given +
Theta decay - this is technically the decrease in an option price in a given period of time "keeping all other factors constant".
In all likelihood given the current vol levels, Vega would've driven the 5pt Pnl profit more than theta given +
