Yes, as usual, a typo. I had the end position and the adjustment right though. Basically buying the +1 160c/-1 165c for $1.30 debit to net the original unbalanced fly into the +1 150c/-2 155c/+1 160c for a dime debit.
As far as the business about the “clean bill of health” or whatever for GS I couldn’t care less. The market action paid off and gave us a basically risk-free position ($0.10 risk versus $4.90 potential profit if you are looking at reward for risk). to me it’s more important to play a position than to predict what may or may not happen. I did add the ladder to be in synch with the original prediction and to respond to the change in implied volatility. For instance if the same price action occurred but volatility was basically unchanged, I would have looked at selling more volatility, perhaps by doing something like another bwb centered around the 150 strike.
Defending the ladder is sometimes tricky but if volatility holds up there is very little risk to the position short term. If GS rebounds to say the 155-160 range, then it’s easy enough to convert back to the original bwb or a similar variant. If GS sells off further then the ladder will gain in value. If GS just sits tight here for the next week or so then IV will drop and force a reconsideration which will likely mean selling some premium. the ladder or its sister type of play, the backspread, is incredibly flexible at this stage (i.e. with a few weeks to go to expiration). And that makes it a decent candidate that meets Sam’s original perspective. So far Sam has been dead on, so no reason to venture in other directions (as long as the position makes sense).
From: OptionClub@yahoogro
Sent: Monday, April 26, 2010 8:03 PM
To: OptionClub@yahoogro
Subject: Re: [TheOptionClub.
Ricky, got it - yep.
If you follow Michael's trading style, this would hardly be the "end" - just the beginning :-).
Murthy
On Mon, Apr 26, 2010 at 5:29 PM, Ricky Jimenez <rickyjim@bestweb.
Didn't you see this, Murthy?
"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". 150/155/160 was meant instead of
155/60/65 and similarly in the next sentence.
I am wondering how many here would have taken Michael's course of
action? The original position would yield between 1.20 and 6.20 if GS
closes below 160 at expiration. Since the premise is bearishness (=
volatility increase) and little upside risk, why not simply sell the
165 call for an additional $1.80 credit, if your margin will allow?
Can you imagine the SEC or Congress giving GS a clean bill of health
before May 21?
On Mon, 26 Apr 2010 16:51:45 -0700, Murthy N <optionsmaya@
wrote:
>What are the typos, Ricky? An unbalanced 150/155/165 fly was converted to
>a balanced fly 150/155/160 (by selling 160/165 vertical). Am I missing
>something?
>
>Thanks.
>
>Murthy
>
>
>On Mon, Apr 26, 2010 at 4:18 PM, Ricky Jimenez <rickyjim@bestweb.
>
>> Some typos in the first paragraph below. Obviously the 150/155/160
>> fly was the target. What is the intended remedial action if GS
>> nestles into the max potential loss of $5.85, 140 - 145 region? Right
>> now, the 150 put, which is a buck OTM, is going for $5.50, So hoping
>> to sell the 140 put for that much or more, if GS is at 141 later in
>> May, seems to be a big gamble.
>>
>> On Mon, 26 Apr 2010 16:29:04 -0500, "mcatolico"
>> <mcatolico@mindsprin
>>
>> >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.
>> Vega?]
>> >
>> >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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