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

 

It would seem that this has more to do with the delta of ladders
rather than gamma. But I think I understand the general principle: If
you want to have a low risk bet on a short term directional move, put
on a OTM ladder or backspread that gets more ITM if the move happens,
and you will make money if you are right but be sure to take the thing
off sufficiently before expiration because you don't want to be
caught near the long strikes then.

On Mon, 3 May 2010 21:02:39 -0500, you wrote:

>The easiest way to see how gamma works is to just look at the prices of the
>same ladder (or backspread) setup if the underlying were to move down a
>strike.
>
>For instance with GS at 150 or so on the close today the -150/+145/+140 put
>ladder is trading about $0.70 debit on the b/a. the -155/+150/+145 put
>ladder is bid at $1.50. so, in theory, if GS moved down $5 tomorrow (to the
>145 area) the -150/+145/+140 ladder would about double in value and, if
>implied volatility also rose on the selloff, it would be worth even more. It
>doesn't matter that if GS were to expire at 145 that the -150/+145/+140
>ladder would expire at the max loss point, the play is a short term bet on
>volatility and directional gamma.
>
>
>-----Original Message-----
>From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
>Behalf Of Ricky Jimenez
>Sent: Monday, May 03, 2010 8:41 PM
>To: OptionClub@yahoogroups.com
>Subject: Re: [TheOptionClub.com] GS TRADE [was:How do you manage your Vega?]
>
>On Mon, 3 May 2010 20:08:42 -0500, "mcatolico"
><mcatolico@mindspring.com> wrote:
>
>>I thought I pulled last b/a and got the 16.15cr. at any rate, the condor
>has
>>only $0.11 risk (with your prices that would be $0.51 risk).with the ladder
>>the risk would be $10.11 max between 130-135. But that's not the point of
>>the ladder (i.e. to hold to expiration and lose the max amount). The point
>>is use the gamma leverage of that position should there be a further
>>directional, near term wave.
>>
>That gamma leverage is what is hardest for many people, me included,
>to understand. It is clear that the position gets very profitable if
>GS plumets below 120 but my impression is that you have tricks to use
>if it gets into the 130s this week or next. Perhaps if you explained
>what sort of actions you have in mind now for such a scenario, we will
>understand better the thinking behind this position.
>
>
>

__._,_.___

Reply to sender | Reply to group | Reply via web post | Start a New Topic

Messages in this topic (41)

Recent Activity:

• New Members 5
• New Links 1

Visit Your Group

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

Switch to: Text-Only, Daily Digest • Unsubscribe • Terms of Use

.

__,_._,___