Sunday, May 23, 2010

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

 

On Sun, 23 May 2010 06:49:54 -0000, "JP" <jamesbparker999@yahoo.co.uk>
wrote:

>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
>
I understand the simple example you are giving, James, but I don't
find it helpful in understanding how Michael chose the particular way
he converted the zigzag position to a strangle. As you pointed out
previously, the task can be done with 4 contracts instead of the 14
Michael used.

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