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Today we’re going to do our daily review. We have been in these positions for about 7 to 9 days now. We are in the Monitor tab, as soon as we open up our TOS platform. Normally, what we do, is we go right into the Analyze tab, and take a look at our current positions. You can also monitor your positions based on your position statement.
Each one of your positions is listed here. If you go across, the overall totals are tallied at the bottom of each column. We like to take a look at the Delta, the Gamma, the Theta, and the Vega. We also like to take a look at our current open profit and loss position, and our profit and loss for the day.
Our current position has an overall Delta position of -29, or -30. What does that mean? As we mentioned in the Delta videos, it means that we have a position in which, if the overall market, based on our portfolio positions, goes up by $1, we would lose $37. If the market goes down by $1, we would make $36.
If you think of Delta as a stock, if you are short stock, what happens to your position? You make money when it goes down. In our case, right now, the actual net change of the Dow Jones Industrial is up 136 points, and we are short 39 Deltas. That means, for every additional point that the market goes up, in our positions, we lose an additional $40.
Our Gamma is currently at -59. Gamma, when buying an option, is always positive. When selling an option, Gamma is always negative. We are net negative Gamma, because we sold more options than we have purchased, at least for a higher price. We are net short Gamma. That is exactly where we expect to be, if we have positive Theta.
Positive Theta is where we make our money. By reviewing these totals, you can tell that, “Yes, if the market does go up a little bit, we are going to lose money on our Deltas.” We are not exactly Delta-neutral. However, our Theta is at the point where we are making about $36 a day – given the fact that all the other components, especially price, remain stable.
Vega, on the other hand, is a +53. What that means is, for every point that Vega goes down… Think of this position, again, as either short or long stock. In this case, Vega moves opposite to the general market direction. Vega is going up, so stocks are going down. If Vega is moving down, stocks are moving up.
You can see that the Dow Jones Industrial Average is up 136 points. If we take a look at a representation of Vega, or volatility in the markets, we would use this to substitute the CVOE Volatility Index. The symbol is $VIX. You can see that the VIX is down today, by $1.05.
That is opposite of the market. The market is actually up $138, as represented by the Dow Jones Industrial Average. It moves in the opposite direction of the market.
In our case, with a Vega of +53, that means that for every additional point in which the market goes up, Vega will go down, and we lose money. If Vega were to increase, that would mean that the stock market would have to go down. We would gain an additional $53 in profit. We are long Vega. If it goes up, we make money.
Our current profit and loss open is $65. Our profit for the day is $79. All things being equal, Theta is working in our favor. We are collecting that $35 a day, in time decay. That is one way you can simply look at your position statement, and get a pretty good feel for how your overall position is doing. Once you get used to using this as a radar system and control panel for your positions, you can tell whether or not you’re going to need, or get close to, an adjustment.