Ricky
If you are really determined to learn or understand this, you will need to study Cottle's stuff, nobody is going to hand it to you on a plate.
In order to shine a little more light on dissection, Cottle makes the following comments;
For most dissections, we convert all positions to "At" and 'Out' of the money options to view as pure extrinsic value.
ITMs trade on markets that are too wide. OTMs are a much bettter trading vehicle because of their narrower markets. Therefore, we synthesize all ITMs to OTMs.
You dissect to discover unwanted, yet tradable inventory that you would like to remmove from the position because it either removes unnecessary exposure (or unwanted risk for the potential gain), salvage value or both.
if there is a significant amount of time, butterflies are insensitive to almost any change in the underlying price.
Market Makers will dissect even cheap butterflies out of the position in order to identify their remaining exposure to deal with as their highest priority.
After that is out of the way they will deal with the lower priority inventory that is ever changeing.
Hope that helps
Cheers
James
--- In OptionClub@yahoogro
>
> On Mon, 07 Sep 2009 20:34:44 -0000, "jamesbparker999"
> <jp@...> wrote:
>
> >Ricky
> >
> >What specific software are you referring to?
> >
> The only dissection software I've heard of is Cottle's. I am still
> mystified as to what it does and how it is to be used.
>
> >Cheers
> >James
> >
> >--- In OptionClub@yahoogro
> >>
> >> On Mon, 7 Sep 2009 12:31:50 -0500, "mcatolico"
> >> <mcatolico@> wrote:
> >>
> >> >>
> >> >Just what is the most general statement that can be made about
> >> >decomposing an arbitrary options position into flies? I knew that
> >> >condors can be broken up that way.
> >> >
> >> >
> >> >MC - not sure what you are looking for.
> >>
> >> I am trying to get some sort of handle on what dissection is all
> >> about. Can an arbitrary options position (all expirations the same)
> >> be written in some neat sort of way as the combination of simple basic
> >> options positions? Of course it can in terms of individual calls and
> >> puts. But I am told that there are useful ways to write it in terms
> >> of not as atomic stuff, for example butterflies and boxes. OK, what
> >> is an algorithm for making such a dissection (decomposition?
> >> software is being sold to do such dissections, it has to follow some
> >> sort of procedure.
> >>
> >
>
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