It's all a balancing act. you constantly have to choose between mitigating
risk and enhancing reward potential. An otm fly is usually a very cheap
form of insurance to hedge a position. and don't forget that you can always
sell something away from the perceived risk to help pay for the protection -
again the juggling act of absorbing risk or leveraging the opportunity.
-----Original Message-----
From: OptionClub@yahoogro
Behalf Of drrobhansen
Sent: Monday, September 07, 2009 9:29 PM
To: OptionClub@yahoogro
Subject: Re: [TheOptionClub.
>if you can see the put side flies starting to skew up in value, add the
+90/-2 95/+100 fly to net into a +90/-95/-105/
protect against some downside threatening movement in the underlying, and so
on.<
Mike, these additional flys, especially in the direction (or impending
direction) of the underlying, cost money, and result in what could appear to
be unacceptable risk/reward numbers. Perhaps proportionally increasing the
number of flys when the underlying moves away gives you a better chance of
achieving your original profit goal. Then again, just breaking even feels
like a victory in some battles.
RFH
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