OPTION LESSON: Options Spread on NIFTY


Assume you open the following NIFTY position in June 2012:


• Long 100 Jul 4800 put


• Short 200 Jul 4700 puts


And


• Long 1 Aug 4500 put


You could describe this position as a Jul 4800 / 4700 put ratio spread along with a long Aug 4500 Put.


Or you could describe it as a Jul 4800 / 4700 debit (bear) put spread along with a Jul / Aug 4500 diagonal calendar put spread.


You can understand the dynamics better if Greeks are calculated –  In other words, the position is defined by its delta, gamma, theta and vega figures.


Here are its Greeks and required margin as of the close of business 18 June 2012

The position has a vega of 140%.

These Greek variables are important, since they describe how the position will respond to market movement (delta and gamma), to the passage of time (theta), and to changes in implied volatility (vega). They also help us to know how to adjust positions.