Saturday, January 2, 2010

Re: [TheOptionClub.com] BWB adjustment plan [1 Attachment]

 
[Attachment(s) from Vik included below]

Hi Joey, please see some comments below:

At the risk of making your net position more complicated, what you have a combination of the following:

(a) Ten 89 Long Put Flys (+10 87/-20 89/+10 91)
(b) Ten 87/89 Short Put Spreads (+10 87/-10 89)
(c) Ten 90/91 Short Put Spreads (+10 90/-10 91)

(a) requires TLT to stay neutral around 89. But both (b) and (c) require TLT to go higher (above 91) as much as possible.

Overall, you have net 293 deltas (please see attached risk graph) and you are risking $2650 to potentially make $350.

With the next earnings season kicking off in the next couple of weeks (statistically speaking, this period does not usually see any significant sell-off in stocks which may help in pushing  TLT higher), there is probably a lot more to lose than what can be made with this position.

The risk/reward can also be easily identified in the attached graph. What you need is at-least a 2 point upward move which will give you a paper profit of $284, But just in case that does not happen and TLT goes down a couple of points, you will be facing a paper loss of $912. Is this risk/reward worth it - you have to decide for yourself...

What you probably need to do is to look at ways to loose deltas. You can add negative deltas in numerous ways some of which include buying some put spreads, selling call spreads, adding things like bearish ladders (-90p/+88p/+85p), backspreads (-90/+2 87) etc. Each of these, however, will have some impact on your theta, vega and potential profit so you need to be careful about what you do now (and subsequently).

While you have said that you are not looking at making any adjustments at this point, I do not think that is a very idea though...

Sorry if I sound negative here but I have just described my real feelings.

All the best with your trade!!!
 
Cheers Vikas


On Sat, Jan 2, 2010 at 5:02 PM, naguse <trading.ocyg@naguse.com> wrote:
 

Hey gang,

Just wanted to pull some thoughts on a trade I have in play, right now I am not planning on doing anything but wanted to know if I am missing something... like being able to adjust the trade to make it better.

TLT

+10 TLT Jan 2010 90 PUT
-30 TLT Jan 2010 89 PUT
+20 TLT Jan 2010 87 PUT

trade initiated at a 0.35 credit.

thanks for any input.

Joey


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Attachment(s) from Vik

1 of 1 Photo(s)

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