Ricky you're focusing on the trees instead of the forest. Yes of course
price matters (as I've already stated) but the point I'm trying to make is
that you still have to look at the context of the situation as you make a
change to your trading position.
even given the prices you show - which I'm not disputing - the goal of the
exercise is to set yourself up for the next phase of the trade. If the whole
thing goes under water then you have to get even more creative. Maybe it
involves selling more 190s, maybe instead of buying three 195s it's only two
(which still gives some gamma based on the circumstances) or maybe its
buying three 200s instead of 195s. again, it's not a paint-by-numbers
approach to trading - that will never work. It's all about a few fundamental
things which I repeat: 1) understand your current position relative to how
the market has changed since you entered the trade and 2) learn how
different alternative trades work under a variety of market scenarios and 3)
understand how to optimize the current position (#1) by selecting from
alternative changes (#2) to net into a position that provides you the best
opportunity to make money.
-----Original Message-----
From: OptionClub@yahoogro
Behalf Of Ricky Jimenez
Sent: Friday, March 26, 2010 8:13 PM
To: OptionClub@yahoogro
Subject: Re: [TheOptionClub.
On Fri, 26 Mar 2010 18:45:49 -0500, "mcatolico"
<mcatolico@mindsprin
>MC - no way would the adjustment be a large debit. it's basically an iron
>butterfly (credit spread) plus a couple otm long calls (minor debit) that
>may or may net into a total debit depending on the obvious factors. As far
>as what the position looks like it's clear that at 190 you have a winner
>(not a loser)
You are right, Michael, that 190 was the best outcome but I wouldn't
call it a winner. To settle the argument (without pistols, boxing
gloves, etc.) as to whether this adjustment is possible, I went to the
OCC Options Calculator and put in the numbers you gave. Volatility
35%, 28 days until expiration, underlying at 185 and got for the
initial position, the prices:
175c 13.09,
180c 9.86,
190c 5.03,
195c 3.41.
Then I changed the underlying to be at 191 with 26 days until
expiration:
185p 4.40
190p 6.60
190c 7.625
195c 5.38 (not so cheap after all). Attached is the expiration graph
with the original condor in blue and the adjusted position in black.
------------
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