Quote from daddy'sboy:
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Your credit is now $0.3? This changes a few things. Your risk now is $7-$0.3=$6.70.
Iow you're risking $6.70 to make at least $0.30. High probability trade but also high risk. When you roll your put down and out (as discussed previously) you may not necessarily take in a credit since the cost of your roll will depend on volatility and change in delta, iow you may have to pay a debit to roll which then gives you a worse profit albeit you reduce your max risk. The exact effect will depend on the cost of the roll. In summary you're risking ~$670 to make $117.
db
Quote from benysl:
Again this is only the 1st month,
this is a diagonal condor. 1st month I make $0.
If the 1st month I have to roll my put my call will not have to roll.
My long strangle expire on mar 2008.
So if I don't have to roll. Oct I will collect premium put and call.
Nov collect put and call
Dec Jan and Feb and Mar
If I have to roll my other side still collect.
Yes 1st month I risk $700 to make $0 if only you understand the reason behind this
Quote from verbotenlaandia:
Actually, in the BEST case, assuming IV is constant and the Q's doesn't move, you would make money in the first month too (your position value will be in the green). You are putting the trade on for a net cost of 0, but at Sept expiration, your short option liability will decay to 0 value. While your long Mar 08 strangle will also experience some decay, it should be at a lesser rate (again, assuming a scenario where the Q's stays in your range, and your long IV doesn't crash).
You are correct. Your trade should be profitable as long as your rolls are done for a credit or even. Your position is in essence a double diagonal and as such volatility will have some effect (you are long vega). The fact you have kept 7 months to expiry and selected a 7 point strike separation between your credit spread legs gives you room to do a lot of rolling should the qqqq's misbehave.Quote from benysl:
yes that is what I am referring to yes it don't have to gap down $7 but if it gap more than $7 that is the max I loss that is why a protective wing is in place. That is why QQQQ is pick as it is index ETF and it don't gap that much (not saying that it will not gap) but it is more prone to news and earnings.
But other that gapping is there any other area or concern I should take note of?
I am referring to 0.3 credit which is why in the 1st month I do not make money.
Quote from daddy'sboy:
You are correct. Your trade should be profitable as long as your rolls are done for a credit or even. Your position is in essence a double diagonal and as such volatility will have some effect (you are long vega). The fact you have kept 7 months to expiry and selected a 7 point strike separation between your credit spread legs gives you room to do a lot of rolling should the qqqq's misbehave.
In summary:
1. you wil make money if qqqq's stay between your short strikes when front month expiry rolls around.
2. you will make money if you adjust your rolls as discussed above.
3. risk lies in a big move in the qqqq's that takes place over a number of days and you run out of credit rolls, i.e. you can only roll for debit. Other risk is iv coming down.
Good luck.
db
It depends. You can roll the put down and out when spot gets to your short strike - this should let you do the roll to the next month for a credit/even. If you wait til expiry your short put may well be deep itm and you'll have to roll down and out to a much further month to do it for a credit/even. Once you run out of months to roll to and/or your short strike is the same as your long (i.e. it's become a calendar) then that's the end.Quote from Eliot Hosewater:
Would you roll as it moves or wait for expiration dates to roll?
Quote from lar:
Hi benysl,
IV crush plus the wide contango spread between front and back months are also enemies of this position.
Just curious about how much you will walk away with. Please keep us posted.
Regards and gtty,
Lar