-----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.
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