1x2 put spread strategy

Quote from atticus:

Position is +delta.
More...
How is the position + delta? And in your subsequent reply you stated that it's not worth the effort as you will accumulate deltas rapidly on a decline. Doesn't compute.
 
Quote from spindr0:
----How is the position + delta?
----you will accumulate deltas rapidly on a decline.
More...
1) To multiply a "negative" by a "negative" gives a "positive". :)
2) On a price decline, the short-put leg overwhelms the long-put leg. You get "longer" and "longer" on a price decline, i.e. more positive deltas. :( :eek:
 
Quote from spindr0:

I'm not familiar with treasury futures or their options so I may be assuming a lot. Be that as it may, your quotes seem bizarre to me. How do you get 9 more pts of premium for a strike only one point higher? Bad quotes or some multiplier involved?

To answer your question, check the deltas of the two options. If the delta of the 117p is more than 1/2 that of the 118p, you're going to lose if your ratio spread drops immediately because the extrinsic loss on the 117p will exceed the intrinsic gain of the 118p. The more it drops, the more delta you lose.

It's possible that if it drops soon and keeps dropping, you may never see breakeven (look at a time series risk graph).
More...

It's ticks, not points. The 118 put is 18 ticks and the 117 put is 9 ticks. Each tick is $31.25. And yes the position will be slightly long delta to start and will get much longer on the way down. There are 32 ticks to a handle. So 32 times 31.25 is $1000 per handle or point.
 
Quote from sukikra:

Hi Guys, new to the forum and kind of new to options trading

I saw the following trade done on 10yr treasury futures on friday

Buy 500 put 118.0 @18
Sell 1000 put 117.0 @ 9

i think at the time the market was trading around 119.0

Now my question is, with this trade being bought for flat, where is the risk ? i see the obvious risk of that if the trade falls below the 116 breakeven then it starts to lose money, but surely the trader could just unwind the trade somewhere between 118-117 ? What greek risk does this trade hold ?

Thank You
More...

You want to trade ratio spreads into lower vol environments. So you better understand volatility. You are over simplifying your position here. Ratios are short vol trades so you don't want to have them on in a situation where vol could explode in your face.

Example, they are far better served to trade the upside in equity indices are equities as vol tends to decrease on rallies which works in the favor of the ratio spread.
 
Quote from nazzdack:

1) To multiply a "negative" by a "negative" gives a "positive". :)
2) On a price decline, the short-put leg overwhelms the long-put leg. You get "longer" and "longer" on a price decline, i.e. more positive deltas. :( :eek:
More...
Clearly, I need to increase my negativity :)
 
Treasury_Example.png


Any questions?
 
yes, what is that program ? Are there any good free excel spreadsheet risk profiling/pricing/graphing tools out there ?

thanks for the feedback guys, i understand now that if the market dumps then the price of the strcture will trade dramatically and you'll have to pay to get out of the trade.
 
You must log in or register to reply here.
Back
Top