Complex option strategy with superior risk-reward profile?

S

samer1

Hi,

I have been working on a complex option strategy that has a very wide profit range. It seems to have an excellent risk-reward ratio and superior to other "income" strategies like iron condors, butterflies, etc...

The bright shaded region is the 68% price range.

Please let me know what you think!

Many thanks!

Regards,
 

Attachments

Good to see someone looking outside the box. Its an unusual risk profile, but interesting. I can't make out the profit potential without additional trades (adjustments) at expiration and what the margin requirement is? What is the plan as market moves either direction?
 
The picture is kind of hard to see, but the from what I can see, it looks pretty good. Would you be able to explain the details in text?
 
My guess is it's a long-vega strategy.
The R/R can be worse if the vol decreases. Also you should weight the vega if your position involves multiple maturities
 
Quote from hedgeman:

Good to see someone looking outside the box. Its an unusual risk profile, but interesting. I can't make out the profit potential without additional trades (adjustments) at expiration and what the margin requirement is? What is the plan as market moves either direction?
More...

Thanks for your comment!

There are adjustments to this trade:

1. If the market goes up, the trader sells calls.
2. If the market goes down fast, the trader unwinds the whole position. If it goes down slowly, the PnL will probably hit the high of the PnL graph on the left side. The position should be unwinded and profits should be taken.

I see there is more potential to create better adjustments for the case that the price goes down.

The margin requirement is USD 15,000. The profit potential is unlimited on the upside. On the downside, there can be a loss. However, please note that if the market crashes immediately, the trade should make some profit (white line).

Feel free to suggest better adjustments...
 
Quote from Nater:

The picture is kind of hard to see, but the from what I can see, it looks pretty good. Would you be able to explain the details in text?
More...


The strategy consists of eight positions. It consists of options with two different maturities. Each option position has its own size. In this case, it is QQQ.

I will not reval the positions. However, I plan to setup this trade in the following weeks... Execution will be interesting...

Thanks for your comment!!
 
Quote from Moderate:

ur brokers are gonna love this one
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I agree with you that commissions will probably be a challenge. As I wrote before, the trade consists of eight positions. However, one can save commissions if you subsitute two positions in the QQQ options with NDX options, which are larger in size.
 
Quote from spec77:

My guess is it's a long-vega strategy.
The R/R can be worse if the vol decreases. Also you should weight the vega if your position involves multiple maturities
More...

As you can see in the picture, the vega of the position is slightly negative. Vol is likely to decrease when the market rallies. When the market rallies, the trade makes some nice gains as you can see from the picture.


Thanks for your comment!!
 
Quote from samer1:

The strategy consists of eight positions. It consists of options with two different maturities. Each option position has its own size. In this case, it is QQQ.

I will not reval the positions. However, I plan to setup this trade in the following weeks... Execution will be interesting...

Thanks for your comment!!
More...

Then you have vol risk and path dependency risk.

At the end of the day, it's unlikely you will see a 10% move in a month; so you are really betting on the downside region. That can be had with a lot easier execution.
 
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