We now understand the basic outlines, but not the details, of the MC
approach to options trading. The position is built up by the daily
selling of ATM premium (BWBs, ladders, backspreads, credit spreads)
with apparently a devil may care attitude towards the risk that is
created at nearby strikes. Also, the total number of puts and calls
are each maintained as non negative (usually positive) which is
referred to as "OTM gamma in the wings". Then during expiration week,
when now now OTM short options have lost most of their time value,
they are bought back at a profit, lowering risk.
If I can imagine an Achilles heal of this methodology, it would be the
case that the underlying quickly goes to an expiration risk point and
parks itself there until expiration. For example, suppose GS had gone
to 150 on 5/13 and stayed there. How would one play the position
then?
On Mon, 17 May 2010 21:45:42 -0500, "mcatolico"
<mcatolico@mindspring.com> wrote:
>Update 5/17/10
>
>Back in the ballgame...
>
>Well this whole trade could have been easily adjusted intraday to be
>essentially risk free (could have bought in the 145/150 call vertical a
>dozen times or so for less than $0.70 each) but we're using end of day here
>for illustration and GS rallied with market into the close.
>
>During expiration week, to me all bets are off, so to speak, with regard to
>vega and the focus is on doing whatever is necessary to eliminate risk. with
>that in mind, need to start reeling all the otm risk in a bit so...
>
>Adjustments
>+3 145p/-4 140p/-2 135p for a net debit of $4.40
>
>( this trade simply closes out the put side backspread wing and extra units
>that were sitting in inventory - sorry Sam, I've finally capitulated on a
>big sell off in GS; the trade goes flat now somewhere below 135)
>
>-3 140c/+13 145c/-6 150c for a net debit of $4.20
>(this trade takes out most of the call side risk though there'd be a bit of
>scrambling if this thing races toward 150)
>
>
>net position:
>-3 140c/+5 150c/+2 155c/+2 160c/+1 170c
>
>-1 165p/-1 135p/+2 130p
>
>Net overall credit is $40.18
>
>
>
>-----Original Message-----
>From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
>Behalf Of Karen
>Sent: Monday, May 17, 2010 12:22 AM
>To: OptionClub@yahoogroups.com
>Subject: Re: [TheOptionClub.com] GS TRADE [was:How do you manage your Vega?]
>
>update 5/14/10
>
>sorry i've been out of town this weekend. with friday's close around 143 and
>premium still pretty strong, i'm reluctant to buy in the shorts just yet. i
>will add one small trade just to cover a little possible near term upside
>risk:
>
>+2 145c/-4 150c at $0.64 debit each (net debit $1.28)
>
>net position:
>-13 145c/+11 150c/+2 155c/+2 160c/+1 170c
>
>-1 165p/-3 145p/+4 140p/+1 135p/+2 130p
>
>Net overall credit is $48.78
>
>
>
>--- In OptionClub@yahoogroups.com, "mcatolico" <mcatolico@...> wrote:
>>
>> No change for 5/13/10. Premium is coming in rapidly but there's no real
>> reason to add to this position by selling it. and it's still a little too
>> expensive to buy in (though the gambler in me might buy the -145p/+2 140p
>> backspread a few times).
>>
>> -----Original Message-----
>> From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
>> Behalf Of mcatolico
>> Sent: Wednesday, May 12, 2010 11:42 PM
>> To: OptionClub@yahoogroups.com
>> Subject: RE: [TheOptionClub.com] GS TRADE [was:How do you manage your
>Vega?]
>>
>> Ricky's correct on net position:
>>
>> Net position(corrected)
>>
>> -15 145c/+15 150c/+2 155c/+2 160c/+1 170c
>>
>> -1 165p/-3 145p/+4 140p/+1 135p/+2 130p
>>
>> Net overall credit is $50.06
>>
>
>
>
>
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