Friday, May 21, 2010

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

 

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

--- In OptionClub@yahoogroups.com, Ricky Jimenez <rickyjim@...> wrote:
>
> On Thu, 20 May 2010 04:04:31 -0000, "speedsam21"
> <SpeedySam21@...> wrote:
>
> >
> >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
>
> Sam, I discussed both the April 30 and May 18 plays in a post,
> "Algorithm for Flattening Expiration Graphs" which is also in the
> Files section as Flatten.rtf. Let me know if what I said there is
> helpful. The problem I have with Cottle's book is that he doesn't
> give enough examples on how to choose and use dissections in actual
> trading. His exposition of dissections is extremely long winded and
> clumsy. Instead of the simple formulas that people here use to
> describe positions, he uses pages and pages of multi colored diagrams
> which I think are pretty but not informative. Well somebody had to
> say it.
>

__._,_.___
Recent Activity:
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.com
MARKETPLACE

Stay on top of your group activity without leaving the page you're on - Get the Yahoo! Toolbar now.

Get great advice about dogs and cats. Visit the Dog & Cat Answers Center.

Hobbies & Activities Zone: Find others who share your passions! Explore new interests.

.

__,_._,___
Posted by at

1 comment:

Subscribe to: Post Comments (Atom)