BWB questions

[momoneythansens]

Quote from Eliot Hosewater:

I've been researching this a little bit more, and came up with an embarassingly silly question.

Indeed. Start off with a simpler example e.g. simple CALL or PUT. Do you need to move the risk profile up or down to account for the debit/credit?

Back to the BWB: Understand where the risk in the position is. Understand the risk of a butterfly and a vertical. The BWB contains both of these risks.

Good luck.

MoMoney.

 

[mysticman]

Quote from Eliot Hosewater:I have the following BWB on Sep calls on SPY up now:
B 1 129
S 2 130
B 1 132
TOS says I can do it for a credit of .30. When I put up the risk profile it shows the max loss line at -700. Does that mean an overall risk of $700, or would it be ($700 - $300) = $400? IOW, should I move the graph up or down by the amount of the original credit or debit?.)

Eliot, applause for your effort to find a free trade. Sometimes our effort clouds our vision.
It appears that you are trying to create some kind of box BWB. That might be a first.

This is not a TOS help forum but generally speaking there is a difference between position profit and position value. The risk graph should show position profit, but you may need to check that this choice is the default.

Sometimes our search goes off track from simple mistakes. In this case a .30 credit does not equal $300. It equals $30. Likewise for the other calculations. I am able to verify your call credit, but getting a credit is not the whole picture. You need to look at the risk graph. There are several problems with the trade that will show up then.

On the put side I am not able to get that credit. First verify that the strikes are correct and that you are trying to create some kind of box BWB. Then we can look at it using EOD prices. Perhaps we can also post this as an example to the Yahoo group?

 

[Eliot Hosewater]

Quote from momoneythansens:

Indeed. Start off with a simpler example e.g. simple CALL or PUT. Do you need to move the risk profile up or down to account for the debit/credit?

It's actually easier for me to see on a simple credit spread. Ex. GOOG 370/380 call credit spread for 6.25. The risk graph shows max loss at 3.75 (i.e. 10 - 6.25)

Back to the BWB: Understand where the risk in the position is. Understand the risk of a butterfly and a vertical. The BWB contains both of these risks.

Good luck.

MoMoney.

That's why I was in playing with the simulator.

 

[Eliot Hosewater]

Quote from mysticman:

Eliot, applause for your effort to find a free trade. Sometimes our effort clouds our vision.
It appears that you are trying to create some kind of box BWB. That might be a first.

It was accidental. The TOS simulator automatically adds new trades to the old ones. You have to delete or uncheck the ones you don't want included. I just wanted to see what the put BWB would look like and it got combined with the call I already had entered.

This is not a TOS help forum but generally speaking there is a difference between position profit and position value. The risk graph should show position profit, but you may need to check that this choice is the default.

Sometimes our search goes off track from simple mistakes. In this case a .30 credit does not equal $300. It equals $30. Likewise for the other calculations. I am able to verify your call credit, but getting a credit is not the whole picture. You need to look at the risk graph. There are several problems with the trade that will show up then.

TOS default is 10 contracts, that's where I got the $300 from.

On the put side I am not able to get that credit. First verify that the strikes are correct and that you are trying to create some kind of box BWB. Then we can look at it using EOD prices. Perhaps we can also post this as an example to the Yahoo group?

Right now I'm seeing .15 credit for the 129/131/132 puts. That's what TOS shows for the combined legs. I'm pretty sure they use Last Price of each leg. If I use Ask/Bid/Ask I get .05 credit. (I hope I'm calculating it right.)

Feel free to post it at Yahoo. I'd be interested to see comments there.

I haven't had any luck posting a risk graph here. What I see on the combined call/put BWBs (for 10 contracts) has two flat wings at -550 that start at 129 and 132. In between there is a kind of mesa with steep sides, the top is flat at +1450 between 130 and 131 (approx).

I need to back off and investigate "simple" BWBs.

 

[mysticman]

Eliot,
I have constructed your position with EOD data useing mean prices. The call BWB shows a credit of .30. The put BWB has a debit of .08. The combined position has a credit of .22. Risk graph attached.

 

[Eliot Hosewater]

Quote from mysticman:

Eliot,
I have constructed your position with EOD data useing mean prices. The call BWB shows a credit of .30. The put BWB has a debit of .08. The combined position has a credit of .22. Risk graph attached.

My graph looks the same. (I wonder why I can't upload it - too big maybe?)

Here's the EOD prices for the put BWB:

129 bid=.65 ask=.70
131 bid=1.40 ask=1.45
132 bid=2.00 ask=2.05

Using all at bid or all at ask I get .15 credit. As I said before using ask for the long legs and bid for the shorts I get .05 credit.

Anyway, what adjustments could be made to the call BWB to get less credit but better risk?

 

[mysticman]

Last risk graph was not altogether correct but in the general spirit of things. Agree on put prices. Using mean prices the credit on the put BWB is .15, making the credit for the whole thing .45.

You need to make a gif file -- screenshot of your risk graph. If you don't know how to do that email me privately.

 

[Rearden Metal]

Quote from Eliot Hosewater:

[Carried over from the Married Puts thread]

OK, so what is a BWB? I've seen some references to putting them on at zero debit, but I assume there is must be some risk.

BWB= Dyslexic fat chick.

 

[mysticman]

Eliot,
Since we seem to have been found and dumped on by the vanguard of the vulgar and uneducated, perhaps it would be good if you introduced yourself and gave some background on your trade with the Yahoo group?

 

[daddy'sboy]

Quote from Eliot Hosewater:
Anyway, what adjustments could be made to the call BWB to get less credit but better risk? [/B]

Bring the long far otm strike closer to the body. You need to keep in mind that the BWB risk graph shows the risk at expiry and may be a bit misleading since it is model dependent and option models are far from perfect.
Best
daddy's boy