Hi Joey,
I just started trading options about two months ago so let me know if I am wrong.
But that's what I am trying to do currently. As the market condition is unpredictable these days, here is what I came up with.
Sell Five SPY Iron Condors for July Expiration (Not fly)
Buy one Double Diagonal Calender for July Expiration (at short strikes of iron condors)
Using TOS software I changed volatility and tried to see how it will affect my position and outcome was good. Even if volatility changes +/- 10%, position would be still profitable if SPY stays within the range of condor.
I would love comments from other members also.
Vimal
--- In OptionClub@yahoogroups.com, Joey Huckabee <joey.huckabee@...> wrote:
>
> I see... these are some very good points that I did not think of (hence the
> reason I posted the question in the first place), but of course your
> comments have lead to intrigue and confusion :-)
>
> I can now see that the two positions where not exactly apples to apples
> ("Calendar was more like a five point wide fly") and that since increasing
> IV over a six weeks period from this higher level of IV would most likely be
> a move down and outside of the profit range any way - so the vega hedge
> using the fly against the calendar was pointless (since this was initially
> to become vega neutral if that is a term or even possible).
>
> So lets whittle the question down to what I really meant to ask - if you do
> not have a IV forecast and IV is currently halfway between support and
> resistance (or some other TA) then would it make sense to attempt to make an
> income trade like a fly or calendar vega neutral? (at least initially). I
> bet the more prudent trade would be to wait until you had an opinion about
> IV, but I thought I would ask anyway.
>
> Thanks,
>
> Joey
>
>
>
> On Sun, Jun 6, 2010 at 11:15 PM, mcatolico <mcatolico@...> wrote:
>
> >
> >
> > I look at calendars and flies as basically the same trade. I say this in
> > terms of the basic "what you want to happen" common sense version of trading
> > strategies.
> >
> >
> >
> > In either your 125 calendar or 125 fly you basically want the same thing:
> > ibm closes exactly at 125 at july expiration. If that were to happen the
> > fly of course would be worth $10 and the net profit would be 6.23. compare
> > that to the calendar. If ibm expires at exactly 125 at july expiry then the
> > jul call is of course worthless and the remaining oct 125 call would be
> > worth whatever the IV at the time would be. To equal the profit on the fly,
> > the oct call would need to be trading at or above 9.78 (your initial 3.55
> > debit plus the 6.23 profit on the fly) to equal the july fly trade's profit.
> > To get to that price with ibm's dividend thrown in that would mean IV has to
> > be about 35-37% which is higher than it is today. So think about that a
> > second, you basically are entering a position that wants ibm to do
> > absolutely nothing for the next 6 weeks or so and , with the calendar, you
> > want IV to rise. Under almost no scenario is that likely to happen.
> >
> >
> >
> > Now the calendar does not exactly equate to the ten point wide fly you have
> > as the supplement to your trade, it's more like a five point wide fly. But
> > even so hopefully I've shown that the calendar is really a trade that is
> > strategically very similar to a fly but with a contradictory wish for
> > volatility to increase while price action peters out. If your forecast is
> > for trendless action, you're much better off simply going with the plain old
> > fly in my opinion.
> >
> >
> >
> > *From:* OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] *On
> > Behalf Of *Joey Huckabee
> > *Sent:* Sunday, June 06, 2010 10:51 PM
> > *To:* OptionClub@yahoogroups.com
> > *Subject:* [TheOptionClub.com] Combine fly and calendar
> >
> >
> >
> >
> >
> > One of the disadvantages of calendars is they are a + vega trades so if IV
> > drops by a significant amount then you loose money.
> >
> > So in this time of increased volatility would it be dumb to place a
> > Calendar + Butterfly combination trade?
> >
> > Let me give an example:
> >
> > IBM - $125.28
> >
> > Calendar BUY +1 IBM OCT 10 $125 CALL
> > SELL -1 IBM JUL 10 $125 CALL
> > DEBIT $3.55
> > DELTA 0.35
> > GAMMA -1.66
> > THETA 2.37
> > VEGA 13.19
> >
> > Bitterfly BUY +1 IBM JUL 10 $115 CALL
> > SELL -2 IBM JUL 10 $125 CALL
> > BUY +1 IBM JUL 10 $135 CALL
> > DEBIT $3.77
> > DELTA -7.96
> > GAMMA -2.51
> > THETA 2.75
> > VEGA -10.49
> >
> > Combined
> > DELTA -7.61
> > GAMMA -4.17
> > THETA 5.12
> > VEGA 2.70
> >
> > This lowers your vega from 13.19 to 2.70 and the interesting part is if you
> > simulate IV increasing by 10% you make money and if it drops by 10% you make
> > money.
> > You have a little more -delta now but that could be offset by buying 7
> > shares of stock.
> >
> > Ok so outside of the stock moving outside of the profit zone... what am I
> > missing here? I realize the greeks change but adding or subtracting some
> > positions can adjust for these changes. This looks like a pretty good way
> > to make money (I know that must sound pretty sophomoric).
> >
> > Thanks in advance for any input.
> >
> > Joey
> >
> >
> >
> >
> >
> >
> >
>
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