Condor premium value change vs. stock price change

[OptionSeeker]

Quote from spindr0:

If you can show me a position where there's no loss area in the P&L curve, I can guarantee you that your only adjustment will be to take profits, sooner or later... if so inclined. But given that there's a minimum distance of at least one strike b/t your short and long legs, what do you think is going to happen to alpha, beta, Moe, Larry and Curly if the underlying moves that far? Gonna consider adjustments or just turn down the volume?

LOL
I looked at the P&L graph after I wrote the post and figured out potential problems with the position. Shouda done that first. Thanks.

 

[OptionSeeker]

Quote from JohnGreen:

Optionseeker, I'm pretty sure Spindr0 has his tongue deeply buried in his cheek on that last comment about Moe and Curly. The fact is that if you completey neutralize all aspects of your option--delta, gamma, theta,and vega (I'm assuming rho is negligible most of the time), then you will also basically negate your profits, too. With IC's you are working to keep your theta, but have the delta/gamma situation relatively neutral. Vega will be a constant concern for writers since a rising vega causes the premium erosion to go far slower, and sometimes even reverses it for a while. If you have a lot of out of the money wings, you will help balance your vegas and gammas, but they do cost money. You will always wind up in a balancing act, no matter how you adjust.

One way to keep a potential for profit is to go into a two month IC and use the current month for your longs, and the second month for your shorts, rolling back in time when the opportunity presents itself (usually for more cash). Then, a good move may make some of the longs pretty valuable.

Calendars also fit into that scenario, as well provided you can do them fairly cheaply. I'm curious, as well, how other people are using calendars in their adjustments.

H John,

Thanks for your reply. Yes, I tried to neutralize everything, but it just doesn't work.


So looking at the strategy you posted, you're short the back month stangle and long the front month further OTM strangles. (If you have to make them credit and debit spreads because of margin requirements, that's a lot of positions! Are there brokers that will recognize the reverse calendar spread as a covered strategy?) What would be the advantage and disadvantage over a regular IC? Thanks.

 

[bebpasco]

Quote from OptionSeeker:

LOL
I looked at the P&L graph after I wrote the post and figured out potential problems with the position. Shouda done that first. Thanks.

There's more than a few moving parts in these unbalanced double calendars/diagonals. While it's a good mental exercise to try and figure out the greeks, you'll find a good P/L (risk) model is your best friend. A good ability in forecasting IV collapse and decent execution also will help. lol!

If you like earnings/event plays and want to reduce the number of legs, take a look at long straddles/straddles going into earnings. There was a guy on another message board (YHOO) who brought this trade idea to that board's attention. Essentially, he would buy the straddle/strangle 3 - 4 wks out before the event, anticipating the IV expansion to overcome theta. He would make delta adjustments along the way --- sometimes even changing strikes. I could never get a handle on his adjustment strategy so I can't give you much more than the above. Tried the trade a few times with very limited success.

 

[OptionSeeker]

Quote from bebpasco:

There's more than a few moving parts in these unbalanced double calendars/diagonals. While it's a good mental exercise to try and figure out the greeks, you'll find a good P/L (risk) model is your best friend. A good ability in forecasting IV collapse and decent execution also will help. lol!

If you like earnings/event plays and want to reduce the number of legs, take a look at long straddles/straddles going into earnings. There was a guy on another message board (YHOO) who brought this trade idea to that board's attention. Essentially, he would buy the straddle/strangle 3 - 4 wks out before the event, anticipating the IV expansion to overcome theta. He would make delta adjustments along the way --- sometimes even changing strikes. I could never get a handle on his adjustment strategy so I can't give you much more than the above. Tried the trade a few times with very limited success.

Thanks bebpasco. So he would buy the straddle and gamma scalp along the way, and exit prior to EA?

 

[MTE]

Quote from OptionSeeker:

H John,

Thanks for your reply. Yes, I tried to neutralize everything, but it just doesn't work.


So looking at the strategy you posted, you're short the back month stangle and long the front month further OTM strangles. (If you have to make them credit and debit spreads because of margin requirements, that's a lot of positions! Are there brokers that will recognize the reverse calendar spread as a covered strategy?) What would be the advantage and disadvantage over a regular IC? Thanks.

No broker would recognize a reverse calendar as a covered strategy, cause it's not.

The main difference between the regular IC and a calendar version is that with the latter you add another dimension, namely the intermonth volatility.

 

[OptionSeeker]

Quote from MTE:

No broker would recognize a reverse calendar as a covered strategy, cause it's not.

Heh, that's true. There's no way to know or completely contain the risk of the back month option with the front ones.

The main difference between the regular IC and a calendar version is that with the latter you add another dimension, namely the intermonth volatility. [/B]

Okay, that's what I thought. Thanks!

 

[spindr0]

Quote from JohnGreen:

Optionseeker, I'm pretty sure Spindr0 has his tongue deeply buried in his cheek on that last comment about Moe and Curly.

Yeh. The ET counter was out of corned beef so I went with a tongue sandwich.

The fact is that if you completey neutralize all aspects of your option--delta, gamma, theta,and vega (I'm assuming rho is negligible most of the time), then you will also basically negate your profits, too.... You will always wind up in a balancing act, no matter how you adjust.

Again, you nailed it. It's a balancing act to find a comfortable blend of short versus long, ending up with an acceptable risk/reward ratio. Too much of one leg and you have good protection but little profit and vice versa if you have too much of another leg.

 

[spindr0]

Quote from bebpasco:

If you like earnings/event plays and want to reduce the number of legs, take a look at long straddles/straddles going into earnings. There was a guy on another message board (YHOO) who brought this trade idea to that board's attention. Essentially, he would buy the straddle/strangle 3 - 4 wks out before the event, anticipating the IV expansion to overcome theta. He would make delta adjustments along the way --- sometimes even changing strikes. I could never get a handle on his adjustment strategy so I can't give you much more than the above. Tried the trade a few times with very limited success.

Ditto. I never got a handle on that one either. I suppose that it was because it was forward looking rather than the day before earnings when all numbers are right there in front of us. Oh well, another one for the to do/figure out list.

 

[spindr0]

Quote from OptionSeeker:

So he would buy the straddle and gamma scalp along the way, and exit prior to EA?

Yep, gamma scalp along the way to mitigate the time decay and hopeflly, catch some pre earnings IV expansion. My take on it was that if the 2nd month was utilized, one might also be in a position just before earnings to set up a double calendar strangle or straddle with these long lower cost 2nd month options andshort the near month fat IV options. Yeh, yeh, I know... see my to do list.

 

[OptionSeeker]

I understand the idea, but I have to look more into the implementation of gamma scalping, like neutralizing at 1 SD? I've done a search here, but I didn't find specifics or journals focusing on gamma scalping.