It does exist.
Can you construct such a P/L graph with any options combos?
- Thread starter DerivativesG
- Start date
I don't use option analysis software, if you could post a screen shot of your results that would be great. Does the software output a P/L graph?
I don't think so.
- How can you have maximum loss at minus or plus n%?
- If such a P/L graph did exist why would you want to enter such a position? The risk/reward ratio is a joke.
- Can you provide a real example with actual quotes?
Ok thanks. But it still doesn't match the original graph. Yours starts off as a credit with a much better risk/reward ratio.
While the original is some sort of debt spread.
While the original is some sort of debt spread.
Excuse me ForexForex,
I am the one who posted the graph and I think MTE is right.
But you can continue your argument if you like.
I am the one who posted the graph and I think MTE is right.
But you can continue your argument if you like.
Nice work MTE! Wonderfully clear screen capture of the TOS analysis including the position as well.
Of course, the position of your graph relative to the zero profit ratio is better, but that is a function of more favourable prices in your scenario. It is clear that you have the right combination of options. It is also pretty similar to a reverse double broken wing butterfly (how's that for a long name!!).
I find it interesting that this risk graph is the mirror image of the positions I usually take which involve an iron condor with protective calls and/or puts embedded (sometimes initially, and sometimes later depending on the market situation and how my position has developed over time). I really like to have increasing profits when the position starts to get closer to the wings. That way, there are a number of positive things that can happen and adjustments can usually be made to capture a chunk of the gains.
The position given by the original poster will lose a little most of the time, but on rare occasions, it will hit one out of the park. To do this on a monthly basis would be very hard because of the discipline involved--accumulating all the small losses would be wearisome. Then, when the market made a very strong move, it would be very hard to be patient enough to capture a significant part of the profit.
Of course, the position of your graph relative to the zero profit ratio is better, but that is a function of more favourable prices in your scenario. It is clear that you have the right combination of options. It is also pretty similar to a reverse double broken wing butterfly (how's that for a long name!!).
I find it interesting that this risk graph is the mirror image of the positions I usually take which involve an iron condor with protective calls and/or puts embedded (sometimes initially, and sometimes later depending on the market situation and how my position has developed over time). I really like to have increasing profits when the position starts to get closer to the wings. That way, there are a number of positive things that can happen and adjustments can usually be made to capture a chunk of the gains.
The position given by the original poster will lose a little most of the time, but on rare occasions, it will hit one out of the park. To do this on a monthly basis would be very hard because of the discipline involved--accumulating all the small losses would be wearisome. Then, when the market made a very strong move, it would be very hard to be patient enough to capture a significant part of the profit.
is correct and the reason why it might be a little below or above the pnl line is if the traders legs into the final position proposed by MTe. Sometimes trader thinks he can buy an extra wing and then scalp the wing in and out as stock moves. If trader does a good job that entire graph is above the line else the entire graph could be below which means it is a locked loss regardless of stock price.
If it's put on for a credit, then the graph is positive in the middle. If a debit, then negative.
MTE's answer is the best because it uses the fewest contracts, but there are many other solutions.
Using the IBM prices from MTE's example - use a 1:3:2 ratio on both sides - with the 1 closest to ATM. That gives you a graph with a negative center.
MTE's answer is the best because it uses the fewest contracts, but there are many other solutions.
Using the IBM prices from MTE's example - use a 1:3:2 ratio on both sides - with the 1 closest to ATM. That gives you a graph with a negative center.
Keep in mind that my posts questioning your graph got a much clearer solution than before I posted. MTE's solution - with screen shot - is very good and he probably would not have posted it if wasn't for my posts.
MTE's graph and your graph are not the same.
ForexForex,
You are probably the only person around here who doesn't use an option analysis tool, everyone else could've entered the example I provided at the start of the thread and would've seen the exact same thing I posted yesterday.
With that said, you should give yourself a pat on the back for bringing out the best in me.