Steve
You are quite right ... my apologies for doing this on the hoof .... the position when dissected is a +2/-4 Call ratio .... equivalent to 8 baby flies and short 2 of the 23 calls.
Cheers
James
--- In OptionClub@yahoogro
>
> This may be a failure of understanding on my part, but this analysis is not making sense to me.
>
> I can see using the boxes to convert the trade synthetically to all calls. You do this by buying the 19-21 box. Then all the puts go away, and you have 2 x a 19/21 ratio with only calls.
>
> Coversely, selling the box converts the trade into even a bigger mish-mash of calls and puts that does not simplify anything.
>
> If you substitute "call" for "put" in your commentary, then I can follow along, and understand, and it seems right to me.
>
> Using puts, I just don't see a way to get unlimited risk on the upside, which is what the original trade had.
>
> Also on the baby butterflies, they have to be done with calls as well.
>
> +2 flies 19/20/21
> +4 flies 20/21/22
> +2 flies 21/22/23
> -2 calls 23 (not 1 call)
>
> You cannot get unlimited risk on the upside using puts to make the butterflies.
>
> Anyway, the way to take the upside risk out is to buy 2 23 calls.
>
> But that can seen by inspection on the risk graph.
>
> I have ordered Cottle's book. I am looking forward to digging into this more. I am hoping there are some insights in there.
>
>
>
>
>
> --- In OptionClub@yahoogro
> >
> > Viky
> >
> > Hi, I checked out your blog to see if we can apply any of Charles Cottle's concepts to your existing positions .... let's take the position that you have got on LOW;
> >
> > ------------
> >
> > +2 19P / -2 21P / -2 21C
> > Max Risk: $170 on the downside
> > Max Reward = $230 (if LOW closes exactly at 21 at Sept expiration)
> > Break-even points = 19.85 and 22.15
> >
> > ------------
> >
> > You have legged into this position for a nett credit of $230.
> >
> > Either by using Cottle's dissection software or by dissecting manually, you would remove the 2 x 19/21 boxes (debit $400) to leave you synthetically with a 2x4 Put Ratio;
> >
> > +2 19P / -4 21P
> > Synthetic Debit $170 [being initial credit $230 less $400 debit for boxes]
> >
> > You may find it easier to manage the position as a Put ratio than a short straddle with put protection
> >
> > ------------
> >
> > Cottle would then go one step further and dissect the total position into baby flies and remnants; in terms of LOW above that breaks down into
> >
> > +2 flies 19/20/21
> > +4 flies 20/21/22
> > +2 flies 21/22/23
> > -1 put 23
> >
> > In terms of risk management, you can simply put out the fire by buying a 23 strike put.
> >
> > If the market ziz-zags between 19 and 23, you can sell off the baby flies if the prices are attractive enough ... which will generally be if the market is at the short butterfly strikes approaching expiration.
> >
> > ------------
> >
> > If the market takes off up or down you could adjust using one of Michael's typical adjustments ..... adding a Fly or BWB in the direction of the move ... to create an unbalanced condor .... then dissect again ...
> >
> > ------------
> >
> > Once you get the hang of Cottle's stuff this becomes easier to understand and apply.
> >
> > Hope that helps
> > Cheers
> > James
> >
> > --- In OptionClub@yahoogro
> > >
> > > Hi Chris, as I feared earlier, personally for me the presentation wasn't any
> > > easier to digest than some of the most difficult chapters in Charles'
> > > book:-)
> > >
> > > Having said that, thank you very much for taking the pains to arrange the
> > > webinar. It doesn't happen very often that you get to hear from such
> > > experienced traders and that too for free...
> > >
> > > May it is time that I revisited his book (bought a few years ago) to make
> > > another attempt at understanding/
> > > etc...
> > >
> > > Happy loooong weekend to all...
> > >
> > > Cheers Viky
> > >
> > > http://options101.
> > >
> > >
> > >
> > > On Sat, Sep 5, 2009 at 7:21 AM, Ricky Jimenez <rickyjim@> wrote:
> > >
> > > >
> > > >
> > > > Chris, in the future, I hope you can suggest to the speakers, to
> > > > explain their modifications by showing how they change the trade's
> > > > expiration diagram. I think Charles assumed the viewers had greater
> > > > vizualization capabilities than most of us have.
> > > >
> > > >
> > >
> >
>
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