SPX fly vs RUT fly

S

status1

Well-known member
I was playing around with the Option greek explorer spreadsheet that Tom made I modified it to show the Theta of a fly trade to see the Theta compared to different dates Feb 21 , 22, 24
First observation was that there is a steep drop between 1 DTE and 2 DTE and a smaller one to 3 DTE
I used the 4075/4055/4035 on SPX to compare with RUT at 1945/1925/1905 I tried to place the long as close as possible to ATM of course you can't get it exact but just to compare those 2 underlying This is probably just a coincidence but the Theta on SPX nearly matches the debit Theta is -334 and the debit for this trade is 3.35 or $335 for 1 lot and similar on the RUT with theta at -407 the debit is 4.08

What is more interesting is the difference in the T+0 line between the 2 which I am not sure what is causing it The volatility is not that much different I suppose it could be because the market is closed but it's seems to be consistent for each expiration
Another possibility could be the size of the underlying and how the option prices drop off faster on the RUT than on SPX

So comparing the 1 DTE expirations SPX has a profit of $20.78 in the center of the tent at 4055 while RUT has a profit of $162.36 at the center at 1925
So for the same width and same expiration RUT has a much more curvy T+0 line
Moving the expirations out to Feb 24 the difference is less but still noticeable $9.33 for SPX and $41.58 for RUT


I would be interested to know if anyone has an explanation for this difference in the T+0 line
 
status1 said:
I was playing around with the Option greek explorer spreadsheet that Tom made I modified it to show the Theta of a fly trade to see the Theta compared to different dates Feb 21 , 22, 24
First observation was that there is a steep drop between 1 DTE and 2 DTE and a smaller one to 3 DTE
I used the 4075/4055/4035 on SPX to compare with RUT at 1945/1925/1905 I tried to place the long as close as possible to ATM of course you can't get it exact but just to compare those 2 underlying This is probably just a coincidence but the Theta on SPX nearly matches the debit Theta is -334 and the debit for this trade is 3.35 or $335 for 1 lot and similar on the RUT with theta at -407 the debit is 4.08

What is more interesting is the difference in the T+0 line between the 2 which I am not sure what is causing it The volatility is not that much different I suppose it could be because the market is closed but it's seems to be consistent for each expiration
Another possibility could be the size of the underlying and how the option prices drop off faster on the RUT than on SPX

So comparing the 1 DTE expirations SPX has a profit of $20.78 in the center of the tent at 4055 while RUT has a profit of $162.36 at the center at 1925
So for the same width and same expiration RUT has a much more curvy T+0 line
Moving the expirations out to Feb 24 the difference is less but still noticeable $9.33 for SPX and $41.58 for RUT


I would be interested to know if anyone has an explanation for this difference in the T+0 line
Click to expand...
Status - while I can't speak specifically to the T0 line in Tom's program as I have not used it - a couple of things to possibly consider:

1) With RUT being roughly 1/2 the value of SPX I would think to compare spread to spread you would need to make the RUT trade spreads be 1/2 of the SPX leg widths wouldn't you?

2) I have personally normally found the Bid/Ask spreads to be much wider in RUT, so IF the T0 is being calculated off of a wide Mid or something else impacted by a spread width, that "may" play in to this as well

I have not really traded 0 or 1 DTE so just some thoughts to consider
 
Thanks Steve for your thoughts
I am trying to make as fair comparison as possible but I am not sure if cutting the width in half would be a fair comparison either as the peak of the tent would be a lot smaller

Currently I am comparing a 2 DTE SPX with 3970/3950/3930 with 2.95 debit and RUT 1890/1870/1850 with 4.40 debit
Comparing the peak of the tent for SPX at 3950 shows $1770 at expiration while RUT at 1870 shows $1560 so that is relatively close
If I make the tent 1/2 the width 1890/1880/1870 that does make the T0 line more flat but now the peak of the tent at 1880 is about half at $870 so I don't think that is a fair comparison

I am now trying to compare the spreads that make up the fly to see if I can find any differences
For SPX the 3970/3950 debit is at $7.85 while the RUT 1890/1870 is at $7.20 Maybe I should find a spread that is closer but that may no longer look like a fly
On the credit side the SPX 3950/3930 shows a credit of $4.90 while rut at 1870/1850 shows $2.8

Using different strikes for SPX did make a difference but now the upper strike is 1 strike lower from ATM at 3965/3945 for $7.00 debit and the credit side is even lower at 3930/3910 for $2.75 credit so these prices are closer to the RUT prices but now it's a condor instead of a fly
So now the t0 line profit in the center is $145 for SPX and $125 for RUT so that is fairly close

So I guess you can't compare fly's with both starting with the long ATM I guess because SPX is more expensive although interestingly the drop off in P/L is almost negligible on the debit side from 3970 to 3937 the center of the condor the 3970/3950 and the 3965/3945 is only off by about 0.30 cents
So it looks more like the credit side makes more of a difference
The 3950/3930 with a credit of $4.90 shows a P/L drop off of $497 while the 3930/3910 with a credit of $2.75 show a smaller drop off of $391
so almost $100

So in order to have a closer comparison it looks like the debit and credit paid is more important than the strike selection so the condor debit for SPX is 4.25 while the Rut fly is at 4.40
 
At the end of the day - I would think you need to evaluate each based off of an equal investment or risk amount. In other words, if you spent $5.00 on A and $5 on B - which one gives you the greatest Reward to Risk ratio or other metrics you may want to measure like POP, etc.
 
I understand
The only thing that got me down this road was the option greek explorer spreadsheet otherwise I would not have even thought about looking at this behavior
This kind of brings attention to some rule based strategies like JL and others where you place the long ATM and the short a certain distance away
where depending on the underlying it will behave differently but that is only for very short DTE (1-2 days) If I do the same at 30 DTE or more the difference is negligible and that only applies if you use the same rules on both underlyings otherwise if you compensate for the difference in the prices paid for each spread than they both would behave relatively similar

As far as the risk reward if I adjust SPX to be closer to RUT in debit paid and keep the width the same they would both behave similar so there would be no advantage one way or the other the only difference might be is for SPX it would have to move a little more than RUT to get to the center of the tent so the p/l would be similar and also outside the tent is also similar loss

If I use it as is without any changes than there are some risk reward options to choose from but than they are no longer similar comparison
 
status1 said:
I understand
The only thing that got me down this road was the option greek explorer spreadsheet otherwise I would not have even thought about looking at this behavior
This kind of brings attention to some rule based strategies like JL and others where you place the long ATM and the short a certain distance away
where depending on the underlying it will behave differently but that is only for very short DTE (1-2 days) If I do the same at 30 DTE or more the difference is negligible and that only applies if you use the same rules on both underlyings otherwise if you compensate for the difference in the prices paid for each spread than they both would behave relatively similar

As far as the risk reward if I adjust SPX to be closer to RUT in debit paid and keep the width the same they would both behave similar so there would be no advantage one way or the other the only difference might be is for SPX it would have to move a little more than RUT to get to the center of the tent so the p/l would be similar and also outside the tent is also similar loss

If I use it as is without any changes than there are some risk reward options to choose from but than they are no longer similar comparison
Click to expand...
When I 1rst saw your post, I plotted the 2 trades out in TOS, and was able to replicate the Thetas you were indicating. The Greeks of the two positions were different, I think the short deltas were different by about ten or so, so they seemed like different trades which would react differently and have differently even if the underlying's price was the same.
 
Yes the Thetas were different that's why I tried to investigate why
I can adjust SPX to have the short delta match closer to RUT by using the 3935 so the fly would be 3955/3935/3915 but it would no longer have the debit close to RUT It would be a debit of $2.35 for SPX vs $4.40 for RUT plus the long leg would start 3 strikes lower than ATM so I am not sure if that would be a fair comparison but that does raise the t0 line in the center although not as much as the condor

I guess you can't have a fair comparison without changing something
 
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