Update 4/30/10
Okay huge selloff (GS down 15 to 145) proving Sam’s prescience. Volatility explodes as well. The trick here is to use the existing position and shift the risk profile. That measly little extra long 140 put unit proved more than enough to make this a decent move for the trade.
Adjustments -
Going to clean house on this first by converting everything to a 140/145/165/
Opening position was:
+1 150c/-2 155c/+1 170c
+1 160p/-2 155p/-1 150p/+2 145p/+1 140p
Net credit: 2.26
To get to the condor add
-1 145c/-1 150c/+2 155c for 5.65 net credit
-2 145p/+1 150p/+2 155p/-1 160p/-1 165p for 16.15 net credit
As complicated as this may look, all I’m basically doing is unloading inventory and doing something of a guts condor all by taking advantage of the big IV spike.
This yields a condor
+1 140p/-1 145c/-1 165p/+1 170c
I also want to keep in the spirit of the trade by hanging on to the short delta forecast (which is working out so no reason to change course) and add some vega on the spike.
So add a put side ladder -1 145p/+1 135p/+1 130p for a net credit of $0.83
If I got all the plusses and minuses correct, the net end of day position is thus:
-1 145c/+1 170c
-1 165p/-1 145p/+1 140p/+1 135p/+1 130p
Net overall credit is $24.89
If someone wants to graph this it might become clearer how simple this position actually is. We’ve got the big condor with almost no upside risk and an extra put unit that is protection (or opportunity) for further selling and/or IV increase. There are multiple ways for this to become profitable: drift/bounce higher or further jarring selloff are the biggest bonuses to the position. a mild drift lower can be scrambled after but may pose the most threat. The trade as it stands makes 4.89 anywhere between 145-165 and loses no more than 0.11 above 170. On the downside would be 10.11 between 135-130 but has nothing but upside potential in the unlikely event that sachs collapses well below 115.
From: OptionClub@yahoogro
Sent: Thursday, April 29, 2010 11:39 PM
To: OptionClub@yahoogro
Subject: RE: [TheOptionClub.
Update 4/29/10
GS continued higher through 160 today (despite all the doom and gloom about the firm). And IV drifted another couple points lower (take a look at the atm straddle to see how vega really got sapped today).
So the position needs some tweaking here to center it around the 160 strike.
Adjustment:
+1 155c/-2 160c/+1 170c $0.40 credit net on this unbalanced fly.
This nudges the body of the trade closer to and surrounding the atm (160) strike while retaining the extra downside units in case the Sam scenario returns. For the most part the trade is vega negative (i.e. has positive decay) into a declining or flat implied volatility environment with an extra put unit should big gap type event occur.
Brings the position to…
Net position:
+1 150c/-2 155c/+1 170c
+1 160p/-2 155p/-1 150p/+2 145p/+1 140p
Net credit: 2.26
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