Micheal, I understand most of this, but where I have trouble with this is that when the trade heads south as you described close to the end, and the vertical looses money, then the position has lost money due to deltas, and an adjustment to bring the position down will then "lock in" those losses. It seems when I try this approach, unless I just happen to be right with deltas every time, then I will loose because every adjustment seems to lock in those losses.
Im so close to getting this, but what am I missing?
Maybe I leave old options where they are and only create new ones as the underlying moves? Could that be it?
Ross
--- On Sun, 5/23/10, mcatolico <mcatolico@mindspring.com> wrote:
From: mcatolico <mcatolico@mindspring.com>
Subject: RE: [TheOptionClub.com] Re: GS TRADE [was:How do you manage your Vega?]
To: OptionClub@yahoogroups.com
Date: Sunday, May 23, 2010, 2:37 PM
Yes this is one easy (easier?) way to do things. Basically when I trade, I am looking for "free" options. Whatever position I start with, there a at least a few ways to extend the trade while holding it risk free. A butterfly (as James points out) becomes a strangle when you buy in the body. So if I start, as he suggests, with a ten point iron butterfly 130/140/150 for -I'll toss a price in for illustration - say $7.00 credit, I am looking for some future chance where I can buy back the 140 straddle for less than $7.00 debit which will leave me with the strangle for zero debit or better. If I have a vertical - say the +140c/-150c for $3.00 debit I will look to convert this into a roll to a higher vertical (e.g. +150/-160) buy adding a short fly for a $3.00 or better credit or move the trade to a risk free butterfly by selling the -150c/+160c vertical for $3.00 credit or better. This is what I mean in the "cheat sheet" I uploaded to files section ages ago showing how to convert verticals "opportunistically. "
It's not as analytical as dissection but it still takes a bit of focus to
try to spot opportunities to convert a winning trade into something risk
free.
The reason I trade this way is that I think a simple close of a winning
position is bound to wind up making for an account that basically goes
nowhere. It's when you take your winnings and maintain the potential for
additional gains that real success starts to accumulate.
When a trade heads south, the whole game for me is to modify the position so
that the reward for risk stays relatively constant and/or the chance of
making money is improved based on where the underlying trades relative to
the position. so for instance with that +140/-150 call vertical above,
let's say the underlying moves down from maybe 136 to 131. I could sit and
pray and hope that the underlying comes back or I can a) do something that
improves my chances if it does comeback like roll the trade down to
+130/-140 or b) I can stop trying to be bullish until the market convinces
me that bullishness is the way to go by moving the trade to something more
neutral like +120/-2 130/+150.
It's somewhat mechanical but it's not exactly paint by numbers. You need to
keep throwing away your ego (whether your position was originally right or
wrong) and just learn to trade where things are until proven otherwise. The
mechanics are pretty simple, again: sell local, buy remote.
-----Original Message-----
From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
Behalf Of JP
Sent: Sunday, May 23, 2010 1:50 AM
To: OptionClub@yahoogroups.com
Subject: [TheOptionClub.com] Re: GS TRADE [was:How do you manage your Vega?]
Ricky
If you take the concept of selling off butterflies and extend this approach
a little it may help to see how Michael converted his position on 18 May
from a Butterfly type spread to a strangle.
1. Assume your position is a 130/140/150 Iron Fly [+1p 130 / -1p 140 / -1c
140 / +1c 150]
2. You want to sell off the butterfly, so look at trading -1p 130 / +1p /
+1c / -1c
3. you realise that the 130p / 150c are either too cheap to sell or you want
to retain some leverage in the wings
4. therefore you just buy the Fly Body [+1p 130 / +1 c 130]
Whereas, Michael does this kind of trade instinctively, the rest of us
probably need some sort of logical framework that works from first
principles; which is where position dissection comes in handy.
Cheers
James
--- In OptionClub@yahoogroups.com, Ricky Jimenez <rickyjim@...> wrote:
>
> On Sat, 22 May 2010 18:58:55 -0000, "JP"
> <jamesbparker999@...> wrote:
>
> >Ricky
> >
> >Difficult to say where you would get most benefit from Cottle's book
without knowing your trading style ... maybe useful if you posted some sort
of sample trades and we could start there ... like you, I don't find the
concept of selling off embedded flies very practical ... but it is based on
exactly the same concept when Michael says that the priority during expiry
week is to buy-in risk ... and if you take Michael's last adjustment he
effectively converted a fly into a strangle ... equally dissecting out the
flies is done to reveal residual risk that is often non-transparent and can
be dealt with quickly when the opportunity arises ... if I had to make a
suggestion, from memory, I would go with the chapters on verticals and
wingspreads ....
> >
> >Have a good weekend
> >James
> >
> The last GS trade, I think, was quote different than selling off baby
> flies. The former averaged out a very profitable with an unprofitable
> section of the graph between 130 and 150, resulting in a completely
> flat but profitable area with a profit between the previous large
> profit and smaller loss. Subracting off a fly usually makes a little
> dimple in the expiration graph of a larger fly while making an even
> smaller profiting effect on the entire graph. Flattening seems to be
> a more powerful technique.
>
> As for my own trading style, I have never been one for daily
> adjustments. So my interest in the GS trade has been of an
> educational nature. Mostly I do lots of small time (back)spread
> positions where the idea is to make good guesses at the beginning of
> the month and close out or rollover at the end. I am still paper
> trading reverse ICs and may even try some with real money soon.
>
------------------------------------
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.comYahoo! Groups Links
------------------------------------
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.comYahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/OptionClub/
<*> Your email settings:
Individual Email | Traditional
<*> To change settings online go to:
http://groups.yahoo.com/group/OptionClub/join
(Yahoo! ID required)
<*> To change settings via email:
OptionClub-digest@yahoogroups.com
OptionClub-fullfeatured@yahoogroups.com
<*> To unsubscribe from this group, send an email to:
OptionClub-unsubscribe@yahoogroups.com
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
|
Thanks for sharing valuable information.
ReplyDeleteG M Breweries Ltd
Bharat Petroleum Corp. Ltd
Shoppers Stop Ltd
63 Moons Technologies Ltd