Michael,
I have been quiet as I have been 3-4 steps behind.
This exercise does help me understand your thinking behind adjustments.
I have other questions on vega later.
With regards to adjustment -
April 30 – where you adjusted into a gut condor
May 18 – where you adjusted to 'strangle'
With comments from Ricky and James,
(a.) could you elaborate your thought process leading to the 2 adjustments?
James pointed to Charles Cottle's {?} position dissection to identifying the risk.
Was that a similar exercise you did?
(I was reading Cottle's book but got distracted.)
With long experience as a market maker, I believe you analyze opportunity/risk – quickly.
(b.) Could you share a 'slow' step to do this?
Thanks,
Sam
- - - -
--- In OptionClub@yahoogroups.com, "JP" <jamesbparker999@...> wrote:
>
> Ricky ... we are priveledged to be able to watch a master craftsman at work .... however, the adjustments follow a game plan that Michael has clearly laid out of buying in his risk during expiry week ... the appropriate adjustment may not be immediately obvious given the complicated nature of the trade ... but if you dissect the Raw position properly .... it is clear that the Net Position [after dissection] is short units -1p 135 / -1p 140 / -2c 140 [see page 2 of the PDF]... and the right trade is simply to buy-in some of this risk ... cheers, James
>
>
> --- In OptionClub@yahoogroups.com, Ricky Jimenez <rickyjim@> wrote:
> >
> > James, either with or without the disection, the adjustment still
> > looks like magic to me. Just how were the number of calls and puts at
> > each strike chosen? In your adjustment and motivation you gave, there
> > were 3 short calls at 140 so why buy only 2 back? By the way, from
> > your graph, it appears that the liquidation value at the close
> > yesterday was quite a bit higher, percentage wise, than the $525 that
> > has been locked in between 130 and 150. That would have been the best
> > adjustment of all.
> >
> > On Wed, 19 May 2010 10:06:03 -0000, "JP" <jamesbparker999@>
> > wrote:
> >
> > >Ricky
> > >
> > >I think you may be looking too hard to find the secret sauce [or algorithm] and it may be easier to try and develop a simple framwork to understand this type of trading.
> > >
> > >1. Prior to expiration week the trades are generally limited risk / theta positive [long the wings butterflies / bwb's, short vertical spreads, short ladders, short outrights].
> > >
> > >2. During expiration week the trades are generally limited risk / theta negative [short the wings butterflies / bwb's, long vertical spreads, short ladders, long outrights]
> > >
> > >Although Michael and Charles Cottle express things using different terminology, much of what they say is very similar.
> > >
> > >As an example, let's take Michael's adjustment on 18 May;
> > >
> > >-3 135c /+5 140c $4.35 net credit
> > >+4 135p /-2 140p $0.72 net credit
> > >
> > >The real nature of the adjustment is not apparent at first; but if you dissect out 3x 135/140 box [+3c/-3p 135 | -3c/+3p 140]; you can see that the adjustment is synthetically the same as;
> > >
> > >+ 1p 135 / +1p 140 / +2c 140 [$9.93 net debit]
> > >
> > >So effectively Michael was buying in his short options risk at 135/140 strikes, which converted the position from a Butterfly type spread to a long strangle.
> > >
> > >I have uploaded screenshots of Risk Graphs in the files section.
> > >
> > >Cheers
> > >James
> > >
> > >
> > >--- In OptionClub@yahoogroups.com, Ricky Jimenez <rickyjim@> wrote:
> > >>
> > >> I am sure the educational value is much more than the expected profit.
> > >> ;-)
> > >> I am fascinated by the last play. I am trying to discover the
> > >> algorithm but have not succeeded, so far. You wanted to flatten the
> > >> expiration graph between 130 and 150 and what you did was to add
> > >> enough to the position to cause 3(00) short synthetic stock at 135
> > >> and 2(00) long synthetic stock at 140. Is that an example of a famous
> > >> trick that market makers are taught? It is vaguely reminiscent of the
> > >> decomposition techniques that Cottle has in his book.
> > >>
> > >> On Tue, 18 May 2010 19:29:04 -0500, "mcatolico"
> > >> <mcatolico@>wrote:
> > >>
> > >> >Update 5/18/10
> > >> >
> > >> >Ho hum another 5 point day in GS. I knew as soon as I gave up on downside
> > >> >leverage that Sam would come back to haunt me.
> > >> >
> > >> >Oh well getting this thing to risk free strangle today...
> > >> >
> > >> >Adjustments
> > >> >
> > >> >-3 135c/+5 140c $4.35 net credit
> > >> >-2 140p/+4 135p $0.72 net credit
> > >> >
> > >> >Net position
> > >> >-3 135c/+2 140c/+5 150c/+2 155c/+2 160c/+1 170c
> > >> >
> > >> >-1 165p/-2 140p/+3 135p/+2 130p
> > >> >
> > >> >Net overall credit is $45.25
> > >> >
> > >> >Not much left to do since this just acts like a couple 130/150 strangles for
> > >> >about $5 net credit. Unless GS collapses from here (or rockets). This
> > >> >should be the end of the trade. No idea how many contracts traded (someone
> > >> >might tally them but I'd guess 100-150 or so which means after all said and
> > >> >done a very modest $200-$300 profit on a very wild ride.
> > >> >
> > >> >
> > >
> >
>
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