No. I'm offering my personal perspective on WHEN to make an adjustment. What
kind of adjustment to make (and closing the position is one alternative) is
another discussion. My point here is that there are pretty clear times that
the market is telling you that your position is in deep doo doo. The
rationale here is that you don't need to make any kind of exotic or
arbitrary or assumption dependent decision. Based on the pure market
conditions and a rather easily pre-determinable (if that's a word) criterion
- namely the prices of other relative options - you are well prepared for
working through most market conditions. With a winner the it might seem a
bit cleaner but with a loser the same dispassionate approach could, and in
my opinion, should, be followed. Even though the condor in my example would
still have some value, the point I was trying to make is that a proactive
trader wouldn't just sit, wait and hope that things might reverse or
improve. As is always going to be the case with a loser, you have to decide
whether to realize the existing loss and close the trade or seek to modify
the position so that you have a fighting chance for profit. Adjustments with
a loser always involve adding risk either by reducing the reward for risk
ratio or by adding overall risk (or both of these). Whatever you do at the
trigger point is of course what defines you as a trader and what will
ultimately either make or break you. I'm just tossing out a method or tool
that can help very definitively define when that trigger point is reached.
-----Original Message-----
From: OptionClub@yahoogro
Behalf Of Ricky Jimenez
Sent: Tuesday, November 03, 2009 8:36 AM
To: OptionClub@yahoogro
Subject: Re: [TheOptionClub.
On Mon, 2 Nov 2009 21:19:06 -0600, "mcatolico"
<mcatolico@mindsprin
>Conversely, say you are in that same +45/-50/-55/
$1.00 debit. if at some point the 45/50 vertical can be bought for a buck,
then that?s the time you have to make a defensive move. The figurative
person holding the opposite side of your condor could thus buy in the risk
of the 45/50 wing and net into the +55/-60 vertical for a riskless, zero
debit. since you are on the defensive you need to assess various strategies
but to give yourself any chance of winning in this position you have to take
on some risk. a possible trade adjustment is to add the +40/-2 45/+ 50 fly
or, if possible for no additional debit, something like the +40/-2 45/+55
unbalanced fly. These defensive moves obviously add risk but when faced with
a losing situation, you need to act decisively. The fact that your virtual
counterpart ?the market? has been given a risk free trade at your expense is
the only message you need to heed the call to action.
Michael, I am a bit confused by this. Is the essence of the above:
"My original position is now worth less than what I paid for it. Thus
I have to either close it out at a loss or make some adjustment (e.g.,
extend the condor at the risk of losing even more than the original
debit) to stay in the game"?
------------
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