Simulated S&P 500 Options Portfolio

A short index strangle collects premium betting the market stays range-bound. What happens when a single headline breaks that range, and does active risk management save the trade — or just delay the loss?

Objective

Construct and monitor a short S&P 500 Index (SPX) strangle designed to monetize elevated implied volatility, then evaluate whether the realized result was earned by the market thesis or by active position management once that thesis was invalidated.

Methodology

1. Price a short strangle (put and call, single expiry) using Black-Scholes-Merton for European index options
2. Set an explicit ex-ante hedge policy: delta band, roll triggers, and a breach-tightening rule into expiry
3. Track daily portfolio delta, theta and P&L against posted end-of-day marks and implied volatilities
4. Execute rolls and closes per the stated policy as the position moves
5. Attribute realized P&L by leg
6. Reconstruct a counterfactual (holding the position unadjusted) to isolate the value of active management from the value of the original thesis

Key Assumptions

Premiums and P&L are stated per one-contract unit without the SPX $100 index multiplier; scaling to a traded contract multiplies every figure by 100.

Execution

Five option executions across three trade events: the strangle entry, a call roll, and a risk-reducing close.

The 6 April roll lifted the call strike 30 points for a net cost of $15.20 and improved portfolio delta from −0.18 to −0.16. The 9 April close crystallized a loss on the call side but, as the counterfactual below shows, preserved the profitability of the book.

Results

Attribution by leg

The counterfactual that matters: the index closed the review period at 7,165.08, above the strangle's upper break-even of 7,048.70. Had the position been left unadjusted, the 6595 call alone would have carried at least 570 points of intrinsic value at period end, putting the book at roughly negative $121 or worse before any time value. Revaluing the actual 6625 call at period-end marks instead of the 9 April close price:

Conclusion: The 29.8% return is real, but it was not earned by the market thesis. The index finished well above the range the strangle was structured to profit from, so the position as originally sized was a loss-maker. The gain of $135.31 is attributable to the 9 April decision to close the losing call leg — worth $259.50 relative to holding it — not to the original view that the market would stay range-bound.

Limitations

• Premiums and P&L are stated per one-contract unit without the SPX $100 index multiplier; scaling to a traded position multiplies every figure in this analysis by 100.
• Marks and implied volatilities are posted end-of-day inputs, not independently sourced. No volatility surface is fitted, so skew and term structure are not modeled — adequate for monitoring at posted marks, but understates risk on a book with strike dispersion.
• No transaction costs, bid-offer spread, market impact or slippage are applied to any execution.
• Margin requirements and the financing cost of posted collateral are not modeled. An undefined-risk short strangle carries material margin in practice, which return-on-premium figures here do not capture.
• The position was not held to expiry. The short put is marked at $4.60 with 22 days remaining, so the final result is a mark-to-market figure, not a settled outcome.
• The structure itself — an undefined-risk strangle — was poorly matched to a binary-headline regime in which a single announcement moved the index 2.5% in one session. A defined-risk structure (an iron condor, or a credit put spread if directional risk was judged asymmetric) would have capped the tail while retaining most of the theta capture; this is treated as the primary structural lesson, not a footnote.

Deliverables

Technology Stack

• Microsoft Excel
• Black-Scholes-Merton option pricing
• Options analytics and Greeks management

Skills Demonstrated

• Derivatives structuring and options pricing
• Delta hedging and position risk management
• Performance attribution and counterfactual analysis
• Risk governance and post-trade review

Prepared for portfolio and educational purposes only. Figures are illustrative, derived from a simulated options portfolio, and do not constitute investment advice.