Update 5/3/10
Bounce back on GS today to close near 150. Volatility retreated accordingly.
So on another 5 point or so move, will look to see if an adjustment seems reasonable here. since the underlying moved squarely into the body of the condor. The price move was significant enough to make an adjustment in my opinion and the change in volatility suggests selling premium (short vega) is the appropriate strategy. This is one of those challenging situations where I’d either do nothing or maybe opt for something counterintuitive (like maybe add the -150/+155/+160 call ladder). But for the sake of this exercise, here I will add an unbalanced call fly atm with the intent of selling a bit of vega and adding some short deltas against a market wind that rallied GS.
Adjustment:
+1 145c/-2 150c/+1 160c $0.54 net credit
Net position:
-2 150c/+1 160c/+1 170c
-1 165p/-1 145p/+1 140p/+1 135p/+1 130p
Net overall credit is $25.43
From: OptionClub@yahoogro
Sent: Friday, April 30, 2010 10:21 PM
To: OptionClub@yahoogro
Subject: RE: [TheOptionClub.
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/
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.
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