Saturday, May 22, 2010

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

 

On Sat, 22 May 2010 15:30:01 -0500, "Jack" <jack@jackcpa.com> wrote:

>That is a good analysis but I think you missed a decimal (or 2).
>
>
>
>You'd lose $.60 per option ($60) between 36 and 39 BUT since you are long 10
>contracts, you'd actually lose $600. J
>
Jack, I thought I was just following the custom among options folk of
giving credits, debits, payoffs, profits, loses, as the actual
amount/contract multiplier, as has been done all along in the GS
TRADE. So I also get $600 total but by multiplying $6 by the contract
multiplier of 100.
>
>
>From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
>Behalf Of Ricky Jimenez
>Sent: Saturday, May 22, 2010 9:59 AM
>To: OptionClub@yahoogroups.com
>Subject: Re: [TheOptionClub.com] Re: GS TRADE [was:How do you manage your
>Vega?]
>
>
>
>
>
>On Fri, 21 May 2010 15:31:12 -0000, "JP" <jamesbparker999@yahoo.co.uk
><mailto:jamesbparker999%40yahoo.co.uk> >
>wrote:
>
>>Ricky
>>
>>Please don't take this as being in any way critical, but I disagree
>completely with you regarding Cottle's book [Options Trading: The Hidden
>Reallity] as it contains many examples of dissections and synthetically
>equivalent positions.
>>
>>Michael's positions frequently end up with 'guts' options that can easily
>be plotted on a risk graph, but not easily understood from the raw data
>unless you apply some form of dissction.
>>
>>For example in the preface to Cottle's book he asks: what amount of money
>is the most one can lose with the following position:
>>
>>QQQQ trading at 37.30
>>36 strike call at $1.70
>>39 strike put at $1.90
>>
>>A trader buys 10 lots of the 36c / 39p strangle for $3.60 ea.
>>
>>Have a go at answering without using a risk graph ..
>>
>>Cheers
>>James
>>
>I agree, James that there are plenty of examples in the book but not
>enough information how to go about using dissections to make money.
>Buying or selling a box can simplify a position, but I need guidelines
>on where to look for such opportunities and how they lead to profits.
>I don't see why it is a virtue, not to draw a risk graph. Using the
>mechanical table method I have shown before:
>
>10*39p
>10*36c
>Slope: -10 0 10
>Payoff: 30 30
>Profit: -6 -6
>BE: 35.40 39.60
>
>so the minimum result is -6 in the interval [36,39].
>
>I did try to find use for one of Charles' ideas, decomposition in
>terms of "baby butterflies". After staring at his description for a
>while, I saw that any position, in s region where strikes are at equal
>distances, can be decomposed into a positive or negative whole number
>of baby all put or all call flies. This becomes obvious if you
>realize that a baby fly has the property that its expiration payoff is
>the distance between strikes at its center and zero at its wings. I
>thought that maybe I could buy a wide fly, say, and then sell off most
>of the ATM babies as the underlying hit various strikes in between the
>wings of the wide fly. But I soon found out that even with well
>traded stocks like Google, ATM baby flies have very large bid/ask
>spreads so I was not accumulating much credit by selling them.
>
>But if you can give me a hint as to where to look for the really
>useful stuff in the book, I will try again. :-)
>
>

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