Update 4/26/10
Well in normal trading on a decent move right into the sweet spot of this
trade the adjustment, for me, is automatic. GS sold off $5 or so with
volatility popping a tad. The easy move is to buy in the embedded short
160/165 call vertical and convert to the 155/60/65 fly. That vertical closed
at around $1.30 debit which would bring the net position to +1 155c/-2
160c/+1 165c for net $0.10 debit. basically a nearly free mini-lottery
ticket on GS bouncing back a bit. Normally I'd leave the adjustment at this.
However the point of this exercise was to trade volatility and, in keeping
with the original mildly bearish stance, retain some negative deltas. so
to stick to the academic side of things, we need to get short some deltas
while buying volatility (as IV has now risen to around 38% or so). So I'll
add a put ladder -1 150p/+1 145p/+1 140p for $0.75dr.
Net position:
+1 150c/-2 155c/+1 160c
-1 150p/+1 145p/+1 140p
Net debit $0.85
-----Original Message-----
From: OptionClub@yahoogro
Behalf Of mcatolico
Sent: Friday, April 23, 2010 6:08 PM
To: OptionClub@yahoogro
Subject: RE: [TheOptionClub.
Okay I'll ignore the "it continues to be weak" perspective and just focus on
the trade. Basically the position is delta neutral with a slight negative
(delta) bias. It's also short vega with IV around 35%
On a trade like this I'll just assume the intent is to hold onto the short
volatility unless the market proves otherwise (i.e. one of the points of
this exercise) and to keep the position relatively delta neutral.
Given these prices and position info basically id be looking at what kind of
changes would require action to protect or alter the position. the one week
single SD is about +/-$7 so the first focus is to check the position
somewhere around the long strikes on the bwb (150 or 165 since 157 +/- 7
points gets us to these strikes). If GS trades at 150 or 165 next week the
idea would be to shift the risk in the trade so that deltas are still
somewhat neutral or slightly negative. Unless volatility starts rising
sharply then the adjustment at the trigger point would be some kind of short
vega play such as adding an atm fly or another bwb around the atm strike.
This is how I would be monitoring the trade and I'll follow up with
commentary should GS move to 150 or 165 zone or if I find something worth
commenting on.
Current position:
+1 150c/-2 155c/+1 165c
Net credit: $1.20
-----Original Message-----
From: OptionClub@yahoogro
Behalf Of speedsam21
Sent: Thursday, April 22, 2010 10:32 AM
To: OptionClub@yahoogro
Subject: Re: [TheOptionClub.
Hi Michael,
Let me digest what you said about Vega.
In the mean time, let us look at a trade on GS.
After GS gapped down due to SEC suit, it now hovers around 157.
It continues to be weak.
May I suggest -
GS May BWB /1 150c/-2 155c/1 165c/ for $1.20credit.
Delta= -12.44; Gamma=-0.38; Theta= 1.78; Vega= -2.97
Of course, I open to suggestion.
Thank you again for sharing.
Best regards,
Sam
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