Sunday, May 2, 2010

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

 

I got 15.75 credit instead of 16.15 for the put spread modification
below. While I think I understood the condor, with its $3.20
($3.60?) risk, I almost fell out of my chair when you added the ladder
with its additional $7 of risk between 130 and 135. However, I am
sure you will have the last laugh, Michael.

On Fri, 30 Apr 2010 22:20:49 -0500, "mcatolico"
<mcatolico@mindspring.com> wrote:

>Update 4/30/10
>
>
>
>Okay huge selloff (GS down 15 to 145) proving Sam's prescience. Volatility
>explodes as well. The trick here is to use the existing position and shift
>the risk profile. That measly little extra long 140 put unit proved more
>than enough to make this a decent move for the trade.
>
>
>
>Adjustments -
>
>Going to clean house on this first by converting everything to a
>140/145/165/170 condor using some crazy strikes.
>
>
>
>Opening position was:
>
>+1 150c/-2 155c/+1 170c
>
>+1 160p/-2 155p/-1 150p/+2 145p/+1 140p
>
>
>
>Net credit: 2.26
>
>
>
>To get to the condor add
>
>-1 145c/-1 150c/+2 155c for 5.65 net credit
>
>-2 145p/+1 150p/+2 155p/-1 160p/-1 165p for 16.15 net credit
>
>
>
>As complicated as this may look, all I'm basically doing is unloading
>inventory and doing something of a guts condor all by taking advantage of
>the big IV spike.
>
>
>
>This yields a condor
>
>+1 140p/-1 145c/-1 165p/+1 170c
>
>
>
>I also want to keep in the spirit of the trade by hanging on to the short
>delta forecast (which is working out so no reason to change course) and add
>some vega on the spike.
>
>
>
>So add a put side ladder -1 145p/+1 135p/+1 130p for a net credit of $0.83
>
>
>
>If I got all the plusses and minuses correct, the net end of day position is
>thus:
>
>-1 145c/+1 170c
>
>-1 165p/-1 145p/+1 140p/+1 135p/+1 130p
>
>
>
>Net overall credit is $24.89
>
>
>
>If someone wants to graph this it might become clearer how simple this
>position actually is. We've got the big condor with almost no upside risk
>and an extra put unit that is protection (or opportunity) for further
>selling and/or IV increase. There are multiple ways for this to become
>profitable: drift/bounce higher or further jarring selloff are the biggest
>bonuses to the position. a mild drift lower can be scrambled after but may
>pose the most threat. The trade as it stands makes 4.89 anywhere between
>145-165 and loses no more than 0.11 above 170. On the downside would be
>10.11 between 135-130 but has nothing but upside potential in the unlikely
>event that sachs collapses well below 115.
>
>
>
>
>
>
>
>
>
>
>
>From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
>Behalf Of mcatolico
>Sent: Thursday, April 29, 2010 11:39 PM
>To: OptionClub@yahoogroups.com
>Subject: RE: [TheOptionClub.com] GS TRADE [was:How do you manage your Vega?]
>
>
>
>
>
>
>
>
>Update 4/29/10
>
>
>
>GS continued higher through 160 today (despite all the doom and gloom about
>the firm). And IV drifted another couple points lower (take a look at the
>atm straddle to see how vega really got sapped today).
>
>
>
>So the position needs some tweaking here to center it around the 160 strike.
>
>
>
>Adjustment:
>
>+1 155c/-2 160c/+1 170c $0.40 credit net on this unbalanced fly.
>
>
>
>This nudges the body of the trade closer to and surrounding the atm (160)
>strike while retaining the extra downside units in case the Sam scenario
>returns. For the most part the trade is vega negative (i.e. has positive
>decay) into a declining or flat implied volatility environment with an extra
>put unit should big gap type event occur.
>
>
>
>Brings the position to.
>
>
>
>Net position:
>
>+1 150c/-2 155c/+1 170c
>
>+1 160p/-2 155p/-1 150p/+2 145p/+1 140p
>
>
>
>Net credit: 2.26
>
>
>
>
>
>
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