-----Original Message-----
Martin wrote:
This discussion on position dissection comes at a very good time. I've
been practicing some of your techniques, and things can get complicated
rapidly. Here's a short example...
<...>
The result is a "risk-free" position: 101p/-102c/-
with a minimum profit of $160 (minus heaps of commissions)
like this approach! But it's getting hard to draw the risk graph in my
head...
MC- congratulations. If you can first master bringing ANY trade to
profitability exclusive of transactions, it's a very small step to get to be
able to manage that cost. You should be paying no more than a buck or so per
contract so even with the number of trades you've made to get you to this
point, most of that $160 should be retained. As far as the risk graph "in
your head" obviously the dissection below can help but if you have a decent
software (like tos) that should easily show your risk at expiration.
However, after going back over the first couple of chapters of OT:THR, I
can see that by adding a long 102/105 box (102c/-102p/
mess turns out to be a simple put condor (101p/-102p/
exactly as the ToS risk graph shows. Or, by adding another short
103/104 box (-103c/103p/
(101p/-102p/
yet, but still, this is very cool!
Now it's time to figure out what's next. I know that I can just
continue to follow SPY, by adding butterflies in order to widen the
condor if necessary. But there's no long gamma left to work with any
more. Does this maybe call for adding another zero-cost ladder
somewhere? In other words, is there a good way to improve on a "free"
condor, without messing it up too badly?
MC -you have to be a bit careful during expiration week. the ladders may
seem very cheap and they can work if you get quick powerful moves right
after you enter them. But in general, expiration for me is a time to get
defensive with the core position and peel off risk as the market allows.
Your core position happens to be pretty simple: a straight 101/2/3/4 condor.
You can ignore what kind of condor this is (put, iron or whatever) as long
as you understand your max risk (obviously it's non-risk with a guaranteed
$160 profit as you state). So what I normally would do is look for
inexpensive ways to maybe leverage the profits locked in so far without
burning up the entire profit potential. Something as simple as buying a
plain 102 put or the +102p/-101p vertical should be a cheap gamble that
could be scalped on a quick selloff or turn into a big winner on a major
selloff. Alternatively, since the current trade already will benefit from a
modest selloff, the 105 call or long 105/6 call vertical might be a cheap
bullish bet. There's not a whole bunch to over think here: you've got a
profit so hang on to it; any further action should be very small limited
risk bets that play off of the core trade.
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