Below is my post on X showing a position comprised of multiple short Call Diagonals, a position that is very long (positive) Vega on the risk profile, which was showing a profit on a day when the VIX was down over 20%. How can that be?
Risk profiles are often a inaccurate representation of the true risk of a position. If you’d like to delve deeper into that topic read this post on the short Call Diagonal strategy. I use the SPX options chain to estimate the value of a spread instead of a risk profile. I also disregard the Vega and Theta values from that risk profile.
The value of SPX Monday options with 3 DTE at or near the close on the preceding Friday.
If I owned a 10 point wide short Call Diagonal I can get a better estimate of it’s likely maximum value as price nears expiration of the short Call in the spread by using the options chain. Let’s use the option chain below to estimate the value of a 10-pt wide short Call Diagonal at Friday expiry. If SPX closed at the Friday Call’s short strike then the long Call would be 10-points OTM (out of the money). You can see from the option chain below, with the VIX around 15, that the maximum potential amount that option could be worth is around $9.30. Again, that’s if SPX is exactly at the short Call strike at Friday’s expiry! You can see the values decrease relatively quickly so, if the Monday long Call was 40-points OTM, it would be worth around $1.50
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