Saturday, August 15, 2009

Re: [TheOptionClub.com] RUT trade question

 

Hi Rich, the position (+530 P/-560 P/-560 C/+590 C) with $17 credit has its break-even points at 573 and 543.

As long as RUT stays around the short strike (560), this position is likely to make money due to time decay and reduction in volatility during the next/expiration week. In this scenario, the position can possibly be left alone without any adjustments.

With RUT around 564 and ATM Imp Vol at around 31%, 1 Standard Deviation Move for a day is around 11 points and for a week is around 23 points.

If RUT moves up by 10-15 points in the 575-580 range, you can possibly add (+560/-2 580/+610) BWB
to net into (-2 580/+590/+610) on the call side. This will allow you to benefit from capturing ATM premium and the new position will be close to the current market price with a better chance of survival (and risk/reward ratio) should RUT retrace back from that point.

If RUT moves down by 10-15 points towards 550, the opposite thinking and adjustment may be considered on the put side.

As you can possibly tell, I am heavily inspired by Michael C's way of making adjustments:-)

Hope this helps.

Good trading!!!  
 

On Sat, Aug 15, 2009 at 12:19 AM, foo.bar28 <Carllr@sdsc.edu> wrote:
 

TOS allows you to look at other trades that are working and I saw an interesting trade. Actually there were several similar ones so it probably a strat that someone has taught. Here's the trade: This was Tuesday and the RUT was at 562. The trade was an Aug condor +530/-560/-560/+590 for a credit of $17.02! With only 7 days left this has to be a pure Theta play. It was also placed before a fed meeting so volitility would normally be up too. So here's the question, i would have to think this trade is meant to be adjusted a few times before expiration, and, it would probably be taken off a day or so before as well. What would the adjustments be? A $3k investment for a $1.7K return is impressive but I just cant think this is a put it on and hope trade. Thanks gang! Rich


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