Just in case anyone was trying to replicate the trade below; Chet emailed me directly, and after a couple of iterations, has acknowledged that the position described below executed for a net debit of (0.34) and there was no 'fly for a credit' created.
Hope that clarifies
Cheers
James
--- In
OptionClub@yahoogro ups.com, "JP" <jp@...> wrote:
>
> Chet ... I don't think I have .... but just in case can you tell me what you reckon the profit at expiry would be if the market finished at 116 or above ... cheers, James
>
> --- In
OptionClub@yahoogro ups.com, Gayatri Maskeri <gcmaskeri@> wrote:
> >
> > Hi James,
> > You are forgetting the profit from the two positions - ($1 -(sum of cost of the 2 trades) = 1 - (.29+.49) = $.22
> >
> >
> > Chet.
> >
> >
> > ____________ _________ _________ __
> > From: JP <jp@>
> > To:
OptionClub@yahoogro ups.com> > Sent: Tue, January 19, 2010 9:17:58 AM
> > Subject: [TheOptionClub. com] Re: Adjusting Bear Call Spread
> >
> >
> > Joel
> >
> > Hi, Can I just check that you have got your calculations correct, as I cannot quite work out how you have legged into the fly for a credit...
> >
> > You said "Once I have the box on, if market moves higher I could sell the 115 116 call vertical (sell 115 long 116) for a credit of .44 which would leave me with a fly at a net credit of .21 +.44 or .65."
> >
> > If I can summarise the 3 trades you have illustrated;
> >
> > - Long 114/115 call vertical for (0.29) debit
> > - Long 114/115 put vertical for (0.49) debit
> > - Short 115/116 call vertical for 0.44 credit
> >
> > This would leave you with
> >
> > - Long the 114/115/116 call Fly
> > - Long the 114/115 put vertical
> > - Total net debit of (0.34)
> >
> > Does this amke sense?
> > Cheers
> > James
> >
> > --- In OptionClub@yahoogro ups.com, "comedynight2000" <comedynight2000@ ...> wrote:
> > >
> > > OK, I'll explain the box in reference to a position I currently have and show values of nearby verticals so you can get a feel for how these adjustments work. I'll use Friday's closing prices though of course they will change tomorrow morning.
> > >
> > > I am long the SPY 114 115 call vertical (long 114 call short 115 call)which I opened a few days ago for a net debit of 0.29. Current value about .50, so I could close for a profit of .21.
> > >
> > > If unsure of direction, I could buy the 115 114 put vertical (long 115 put short 114 put for a net debit of about .49.
> > >
> > > At expiration the box must be worth the difference in strikes of 1.00 leaving a net profit of about 1 minus cost of call vertical and put vertical or 1-.29-.49 or .22 which closely matches my profit mentioned earlier of .21, in other words locking in that profit.
> > >
> > > Once I have the box on, if market moves higher I could sell the 115 116 call vertical (sell 115 long 116) for a credit of .44 which would leave me with a fly at a net credit of .21 +.44 or .65.
> > >
> > > Or, once box is on, and market moves lower i can sell the 114 113 put vertical (sell 114 put buy 113 put for a net credit of .44 also and again an adjusted fly is left with a net credit of .65.
> > > My point being that buying that put vertical to create the box allows me to lock in a current profit and adjust up or down from there.
> > >
> > > Also I need to correct my previous post. I meant to say that the 113 call could be bought and the 115 call sold resulting in long the 113 short 114 call or a bullish call vertical.... I hope this helps...Joel
> > >
> > > --- In OptionClub@yahoogro ups.com, Jim Hergenreder <jimhergenreder@ > wrote:
> > > >
> > > > I would be interested in the box explanation. Â
> > > > Â
> > > > Thanks,
> > > > Jim Hergenreder
> > > > Â
> > > >
> > > > ____________ _________ _________ __
> > > > From: comedynight2000 <comedynight2000@ >
> > > > To: OptionClub@yahoogro ups.com
> > > > Sent: Sat, January 16, 2010 6:57:12 PM
> > > > Subject: [TheOptionClub. com] Re: Adjusting Bear Call Spread
> > > >
> > > > Â
> > > > The box is a tad complicated to explain, but basically it allows you to lock in the current profit or loss while positioing yourself for a possible reversal. I can explain more depth if interested but would rather point out four other adjustments to consider. First, simply buy a DITM call to defend your short call. For example, if short the 114 and long the 115 call, buy the 113 call, however please be aware that this adjustment shifts your position from bearish to bullish. Three other adjustments are: you can roll up to a higher strike, giving you more protection, roll out to a farther month, giving you more time, or roll up and out. Specifically: buy back the 114, sell 115 and then sell the 115 again, and buy the 116 (this was also astutely mentioned by James as a butterfly adjustment)or buy back your Januarys and sell the same strikes in February, or buy back the January 114 and 115 spread and sell the February 115 and buy the February 116 call.
> > Often
> > > > the up and out alternative, the last one, can be done for little or no debit or sometimes a slight credit. I hope this helps! :) ....Joel (There are many other possible adjustments too such as selling a bullish put spread below the current price. The list goes on but this should give you some good things to check on.....)
> > > >
> > > > --- In OptionClub@yahoogro ups.com, "metagunny" <justin@> wrote:
> > > > >
> > > > > I agree. Going into the position, my strategy was to close out the position, and put it back on at a higher level.
> > > > >
> > > > > However, I'm seeing, mathematically, what is the best way to adjust this postion? Is there one?
> > > > >
> > > > > The box adjustment seems interesting. What effect does that have?
> > > > >
> > > > > Basically, with this type of position, if the market goes up, it's probably losing a little bit of money, but what I really care about is the price going above the strike price of the calls I sold. It can even go a little above that price, and not lose money, because of the net credit.
> > > > >
> > > > > Is that thinking correct? The best way to manage this trade is to make sure I never suffer the max loss of the difference between strike prices, plus my credit?
> > > > >
> > > > > If I do the box, will that mean I let them all expire and it breaks even from that point on?
> > > > >
> > > > > I missed the webinar today, and I'm really hoping they archived it.
> > > > >
> > > > > --- In OptionClub@yahoogro ups.com, "comedynight2000" <comedynight2000@ > wrote:
> > > > > >
> > > > > > You have lots of ways to adjust a losing vertical. I'll mention a few but you really need to decide on what, how, and when before entering the trade. Obviously, you can simply close it out; keeps things simple. Another is buying the opposite put vertical, buy the 114 sell the 115 which creates a box and gives you time to see what the market will do. There are several ways to adjust the box once the market has tipped its hand so to speak. For example if the market continued against you, bullish you have a winning put vertical and you can sell the higher put vertical, say sell the 115 and buy the 116 to adjust that part of your position into a fly. Third, you could have bought SPY.....Joel
> > > > > >
> > > > > > --- In OptionClub@yahoogro ups.com, "metagunny" <justin@> wrote:
> > > > > > >
> > > > > > > I did one part of an Iron Condor, the bear call spread.
> > > > > > >
> > > > > > > I sold the SPY Jan 10 Call with a strike of 114, and bought the SPY Jan 10 Call with a strike of 115. I did this about 3 weeks ago, and I closed out the position yesterday.
> > > > > > >
> > > > > > > My question is: Once the SPY hit 114 or close to it, what is the best way to adjust this trade?
> > > > > > >
> > > > > > > Yesterday I closed it out and bought back the position, buying to close what I sold and selling to close what I bought.
> > > > > > >
> > > > > > > I then did the same trade but at the 116 and 117 strike prices, to try to get back some of the loss.
> > > > > > >
> > > > > > > Is there a better way to adjust this trade besides buying it back?
> > > > > > >
> > > > > > > What else are my options?
> > > > > > >
> > > > > > > Of course, today the SPY dropped back below 114 so I should have waited, but I'm not worried about that.
> > > > > > >
> > > > > > > Thanks in advance.
> > > > > > >
> > > > > >
> > > > >
> > > >
> > >
> >
>
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