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

[jamesbp]

Quote from MTE:

Yes, you can construct a position like that. I don't think there is a formal name for it.

Basically, it involves a call backspread with an extra OTM short call and a put backspread with an extra OTM short put. Here's an example:

Short 1 145 put
Long 2 155 puts
Short 1 160 put

Short 1 170 call
Long 2 175 calls
Short 1 185 call

Depending on how you like to dissect/view your positions; MTE's suggested position can also be described as;

1. Sell 1x 145/155/160 PutBWB | Sell 1x 170/175/185 CallBWB or
2. Buy 1x 155/160/170/175 Condor | Sell 1x 145/155/175/185 Condor
3. Buy 1x 155/160/170/175 Condor | Sell 1x 145/155 Put Spread | Sell 1x 175/185 Call Spread

Ultimately, it is a pretty standard Condor/Slingshot configuration.

Cheers
James

 

[eudaemon]

Quote from ForexForex:

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.

Depending on the ratio of the long versus shorts, that middle level can be placed pretty much at any level.

Now we know that it wasn't put all 6 legs at once...

therefore it is resulting from either:

1-Managing an old position, or.
2-Adding two separate positions that overlap in price to some degree, or.
3-Both.

So, we are past the "mechanics". Now: Where is the "edge" ?

 

[spindr0]

Quote from MTE:

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.

Pesticide works well too!

 

[DerivativesG]

Quote from eudaemon:


So, we are past the "mechanics". Now: Where is the "edge" ? [/B]

I also constructed a little mock position just like MTE on TOS, and I calculated my own delta and MTE's delta on both positions and I think the edge of this trade is to be delta neutral? But as an options trader/hfm you can construct much simpler delta neutral trades?

 

[MTE]

Quote from DerivativesG:

I also constructed a little mock position just like MTE on TOS, and I calculated my own delta and MTE's delta on both positions and I think the edge of this trade is to be delta neutral? But as an options trader/hfm you can construct much simpler delta neutral trades?

Delta netrality is NOT an edge!

There is no point in discussing what is the edge of a position since we don't know all the details.

 

[DerivativesG]

Quote from MTE:

Delta netrality is NOT an edge!

There is no point in discussing what is the edge of a position since we don't know all the details.

I think the word you are looking for is neutrality and not netrality.

Whatever.

What I could tell you more about this position is the following:
The trader who puts on this position chooses options whose
underlying is very volatile.

 

[spindr0]

Quote from DerivativesG:

What I could tell you more about this position is the following:
The trader who puts on this position chooses options whose
underlying is very volatile.

Underlying volatility presents opportunity to trade. It's not an edge.

 

[Mike Okistini]

Guys, I told you what it is, it is two short butterflys that partially overlap on the strikes. The left and right sides are FLY risk graphs and the middle formation is due to the FLYs overlapping in the strikes.

If you dont believe me put two apart FLYS on a risk graph and move the strikes together until they overlap a bit.

It is not a magical set up and is more desirable as two long FLYS overlapping for a short vol non directional play but you have to play with the strikes and the position.

 

[ForexForex]

Quote from MTE:

Yes, you can construct a position like that. I don't think there is a formal name for it.

Basically, it involves a call backspread with an extra OTM short call and a put backspread with an extra OTM short put. Here's an example:

Short 1 145 put
Long 2 155 puts
Short 1 160 put

Short 1 170 call
Long 2 175 calls
Short 1 185 call

I paper traded this IBM position with Yahoo Finance and it's down - $138.00 / - 281.63% with expiry in one week - IB commissions included. Anyone else get the same results?

Fill prices were based on MTE's chart from page 4: http://img688.imageshack.us/img688/2833/screenshotpcj.png

 

[JohnGreen]

Assuming Forex is right, it confirms my post. Most of the time this is a position that loses money, and once in a while it smokes one out of the park.

In order to profit, you need significant movement in one direction or another.