Re: [TheOptionClub.com] GS TRADE [was:How do you manage your Vega?]

 

Based on Michael's request, here is the risk graph for those who are following this thread:



Michael, your numbers are pretty accurate and exactly match those in the risk graph:

On the upside, max risk = $11 (above 170)
On the downside, max risk = $1011 (between 130 and 135)
Potential profit = $489 (between 145 and 165)
Theoretically unlimited profit below 135

Expiration break-even points = 142.54 and 170.04

On Sat, May 1, 2010 at 1:20 PM, mcatolico <mcatolico@mindspring.com> wrote:

 

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 140/145/165/170 condor using some crazy strikes.

 

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@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On Behalf Of mcatolico
Sent: Thursday, April 29, 2010 11:39 PM

To: OptionClub@yahoogroups.com
Subject: RE: [TheOptionClub.com] GS TRADE [was:How do you manage your Vega?]

 

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

 

 

Your email settings: Individual Email|Traditional

Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch to Fully Featured
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe

__._,_.___

Reply to sender | Reply to group | Reply via web post | Start a New Topic

Messages in this topic (18)

Recent Activity:

• New Members 8
• New Links 5

Visit Your Group

The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com

Switch to: Text-Only, Daily Digest • Unsubscribe • Terms of Use

.

__,_._,___