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
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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.
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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 ...
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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@..
>
> >
> >
> > 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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