Can you construct such a P/L graph with any options combos?

[eudaemon]

I can imagine ending up near expiry with something like this, but can't see the logic of initiating a position like that in one go.

 

[spindr0]

Quote from DerivativesG:

Another additional thing I know about this combo position is that the person who would do this position would do this with options that would expire in 90 days and before the expiration he would roll out the position to the next month. Do you see any logic in that. I mean from the description given to me it's not a trade that evolved from reducing the debit or anything, the person who puts this trade on always positions himself with 6 legs. I mean when he re-enters this combo trade everytime, he makes sure he gets filled for all the 6 legs on the same day.

...

The person who does this trade is trader at a hedge fund. He used to earn a lot from this position until early 2009. He still puts on this position but he said to my friend that this position does not bring him as much as it used to.

1) As mentioned by others, it's commission (and slippage) intense. Not good.

2) If held for 60 days, to a point it behaves a like a long straddle - better in the loss and modest profit areas and worse if you get the monstrous move (opportunity loss).

3) I don't know what to make about the 2009 comment because this position does better as IV rises and the opposite has occurred since then. IOW, you'd want IV to rise after executing it.

 

[MTE]

Quote from spindr0:

...3) I don't know what to make about the 2009 comment because this position does better as IV rises and the opposite has occurred since then. IOW, you'd want IV to rise after executing it.

The OP said up until 2009, so it is plausible.

 

[spindr0]

Quote from MTE:

The OP said up until 2009, so it is plausible.

It's plausible during any period where IV rises. .

2007 to 2009 was a high IV period. The present is a lower IV period. Both details are irrelvant since it doesn't matter what IV is when the position is executed as long as it rises afterwards. Therefore, to me it makes no sense that it only worked then and not now.

I see no edge to a 6 legged critter like this with all legs executed simultaneously. That changes if you get a decent IV skew or you leg in but that's not the OP's presentation.

The secret sauce to a position like this is being a Fool Service Broker

 

[MTE]

Quote from spindr0:

It's plausible during any period where IV rises. .

2007 to 2009 was a high IV period. The present is a lower IV period. Both details are irrelvant since it doesn't matter what IV is when the position is executed as long as it rises afterwards. Therefore, to me it makes no sense that it only worked then and not now.

I see no edge to a 6 legged critter like this with all legs executed simultaneously. That changes if you get a decent IV skew or you leg in but that's not the OP's presentation.

The secret sauce to a position like this is being a Fool Service Broker

I agree with you. Maybe that position worked once and never again since 2009.

 

[jogomax]

Quote from DerivativesG:

The person who does this trade is trader at a hedge fund.

Maybe is related to that, and he can get discounts in the official commisions from his/her broker under the table.

 

[Mike Okistini]

Quote from DerivativesG:

Hello everyone,
Okay this was passed onto me by a fellow trader.
He suggested that someone he knew constructed such combo position that had the following P/L graph.
Does such a combo position exist? What is it called?

Two short butterflys that partially overlap.

 

[ForexForex]

• The P/L graph posted cannot exist.
• You have a call and put debt spread with a risk/reward ratio of about 1/1.5
• The shaded out orange circles indicate price action that cannot occur.

 

[DerivativesG]

I got more info on this position and it seems that the earlier posters were right. This six legged creature, does not get filled in one day alone.
The rest of the assumptions about the net debit and offsetting it was also right.

 

[MTE]

Quote from ForexForex:

• The P/L graph posted cannot exist.
• You have a call and put debt spread with a risk/reward ratio of about 1/1.5
• The shaded out orange circles indicate price action that cannot occur.

Input an example I gave at the beginning of the thread into an option analysis software and you will see that a position like that does exist.