I'm researching options strategies and I started paper trading a $SPY options. Here's my strategy:
Set up a strangle 5% above and below the market price expiring a month from the day of trade. 12 contracts total.
On Feb 20th, I looked at the cost of that setup:
Actual price of the stock ($SPY) = $336.40 Sell a Call 5% above the market (SPY200320C00355000) = $0.13 x 100 x 12 = + $156.00 Sell a Put 5% below the market (SPY200320P00319000) = $1.42 x 100 x 12 = + $1,704.00 So on Feb 20th, I would have received $1,860.00 for selling those options.
A month later, the idea is that one of those options would be worthless and the other one cheaper than the price paid (of course this was not the case with the current market/Covid-19)
On Mar 20th, I would have to pay back
Current price of the stock ($SPY) = $244.41 SPY200320C00355000 is now worth $0.01 = $12 SPY200320P00319000 is now worth $77.10 = $92,520.00
leaving me with a total of $ -90,660.00
Although it is clear that this strategy backfired given the current situation, I would like to understand if my calculations are right.
More specifically, do I have to consider the fact that for every point that an index option goes beyond the strike, I will have to pay/earn $100? If this is the case, I would have to pay an additional 9,200 per contract (?), or $110,400
Since starting, I learned that an Iron Condor is much more secure than a Strangle and I'm planning to paper trade that strategy for a while.