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.
On Fri, 26 Mar 2010 18:45:49 -0500, "mcatolico"
<mcatolico@mindsprin
>
>
>-----Original Message-----
>
>Ricky asked:
>
><...> an example would be -190c/+3 195 to net into a 2X4 backspread on the
>call side and maybe I'd look to get a bit of a credit by selling the
>-190p/+185p vertical
>>
>Have you checked this one out with an options calculator or a real
>ticker, Michael? Please post the details if so.
>
>MC - it's theoretical and the prices may be a small debit or credit
>depending on time/volatility. The point is that I'm suggesting an adjustment
>based on circumstances. Price is important always but so are the resulting
>risk & opportunity profiles. That's why there is no cookie-cutter approach
>to trading.
>
>I think you are saying, add 185p -190p -190c + 3*195c to the original
>condor, 175c - 180c - 190c +195c getting
>175c -180c +185p -190p -2*190c +4*195c. The adjustment seems to
>require a large debit because of the 3 long 195 calls and according to
>a rough expiration graph I drew, the trade will lose big at 190, total
>disaster at 195 and be unprofitable if the position ends up below 205
>or so.
>
>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) since everything is worthless besides the long 175/180 call
>vertical. worst case is definitely 195 but so what? The original condor is
>also a "total disaster" at 195 and the point is that if things move toward
>195 the embedded backspread will make money and can be scalped thus getting
>to an overall net position to a much healthier cost point. The thing is
>that ALL trades - and thus ALL trade adjustments - are decisions made under
>uncertainty. You make a bet, when the bet goes sour you adapt and change it
>all the time trying to fight for profitability. It's not magic but it's not
>all luck either. If you develop an understanding about what a pending trade
>profile looks like (i.e. understand what it will do under a variety of
>subsequent price and volatility conditions) and you are acutely aware of
>what your current risk profile consists of (i.e. your current position
>relative to how it may have changed due to the changing market) and you
>synthesize the two (possible adjustment relative to current position), then
>you will eventually develop the skill and feel needed to succeed.
>
Attachment(s) from Ricky Jimenez
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