Critique this upcoming trade on GOOG

[Zwaen]

I’m thinking about setting up a trade on GOOG on next Monday, or any other day in the beginning of next week if GOOG will move around 110. I would like to lay out the basics of the idea and let it open for (hopefully good) critique and recommendations on this mindfart after a good run.

The idea is very basic and has probably no edge, (or is random). I think there is a possibility that GOOG can make a large swing down:

• GOOG is approaching a gap fill
• GOOG just pierced a prior significant high (02 feb '23)
• The market as a whole could possibly correct by now providing extra push

I want to use the following option structure to trade this. No i don’t believe there is edge in this particular structure, it’s just structured around the idea. I think I will use expiration of 2 weeks, 21 feb for this:

• -1 P 112
• +1 P 108
• +2 P 105

For a credit around 0. The idea is to let it ride for 2 weeks, sit back and forget. So basically this will lose if price doesn’t move much, and will win (relatively) big if price makes a larger swing down.

If anyone has good ideas of recommendations for example on other trade management or other (better) structures this would be highly appreciated.



On a side note, this would basically work if one can identify points in price where pricemovement has – within your timeframe – a different than random distribution AND this is not already reflected in option pricing.


edit:
A simple ratio like this would also be a possibility:

• -1 P 113
• +2 P 109

 

[earth_imperator]

For a credit around 0. The idea is to let it ride for 2 weeks, sit back and forget. So basically this will lose if price doesn’t move much, and will win (relatively) big if price makes a larger swing down.

It's as you said. Just watch the B/E point(s) (% distance to current spot) to determine when you will get into the profit zone(s). As you said, the lower side gives a much higher profit if the stock drops big.
I haven't looked at the current quotes, but using BSM calculator for the 2nd case using IV=30 gives this PnL diagram: https://optioncreator.com/sturlvl
And using IV=38 (current ATM average IV according to OCC): https://optioncreator.com/sty1lkj
And here using current quotes (from OCC): https://optioncreator.com/sthhhk3

 

[destriero]

I’m thinking about setting up a trade on GOOG on next Monday, or any other day in the beginning of next week if GOOG will move around 110. I would like to lay out the basics of the idea and let it open for (hopefully good) critique and recommendations on this mindfart after a good run.

The idea is very basic and has probably no edge, (or is random). I think there is a possibility that GOOG can make a large swing down:

• GOOG is approaching a gap fill
• GOOG just pierced a prior significant high (02 feb '23)
• The market as a whole could possibly correct by now providing extra push

I want to use the following option structure to trade this. No i don’t believe there is edge in this particular structure, it’s just structured around the idea. I think I will use expiration of 2 weeks, 21 feb for this:

• -1 P 112
• +1 P 108
• +2 P 105

For a credit around 0. The idea is to let it ride for 2 weeks, sit back and forget. So basically this will lose if price doesn’t move much, and will win (relatively) big if price makes a larger swing down.

If anyone has good ideas of recommendations for example on other trade management or other (better) structures this would be highly appreciated.



On a side note, this would basically work if one can identify points in price where pricemovement has – within your timeframe – a different than random distribution AND this is not already reflected in option pricing.


edit:
A simple ratio like this would also be a possibility:

• 
  
  
  • -1 P 113
  • +2 P 109

You're in a backspread that has a terminal BE of 103.

 

[destriero]

GOOGL has all the liquidity. The trade is going to get hammered unless mkt-beta bails you out or Russia nukes Ukraine.

 

[earth_imperator]

I haven't analyzed it fully, but what about this one: https://optioncreator.com/st1k8i6
Spot=108.90, DTE=15
ShortPut: Strike=96, Premium=0.11
LongPut: Strike=101, Premium=0.39

Or maybe this one: https://optioncreator.com/st1k8i6
ShortPut: Strike=98, Premium=0.18
LongPut: Strike=105, Premium=1.04

 

[Overnight]

GOOGL has all the liquidity. The trade is going to get hammered unless mkt-beta bails you out or Russia nukes Ukraine.

If anyone nukes anyone else, all trades will go to zero, and VIX will spike to 18,000 (until the EMPs around the world take out the power grid). So long the vol, haha!

 

[Zwaen]

GOOGL has all the liquidity. The trade is going to get hammered unless mkt-beta bails you out or Russia nukes Ukraine.

I understand the pay-off structure, i tried to design it around the outcome i would found most plausible, ea move up or make a relatively large move down. It now loses the most if prices stalls/moves a little down. I would basically think the outcome distribution of these kind of trades would be more bimodal, so to say.
I think it would indeed be better try to construct a structure which loses less in that outcome due to volatility change, eg if price moves up otm calls lose due to sliding down the skew (what you say) or swapping the long or short variant to gain for certain legs more or less exposure to volatility. If possible at all.

 

[Zwaen]

I haven't analyzed it fully, but what about this one: https://optioncreator.com/st1k8i6
Spot=108.90, DTE=15
ShortPut: Strike=96, Premium=0.11
LongPut: Strike=101, Premium=0.39

Or maybe this one: https://optioncreator.com/st1k8i6
ShortPut: Strike=98, Premium=0.18
LongPut: Strike=105, Premium=1.04

Hi yes the payoff structure at expiration is very easy, one can do it in your head (or 3 columns in excel if you want). Exposure to the greeks is another story ofcourse.

Since you use these websites, you may find this one better: https://www.optionsprofitcalculator.com/calculator/butterfly.html

 

[destriero]

ATM put fly with excess bear tail contracts.

 

[destriero]

Mid hold it behaves like a digital. I would put a time stop on it, but the curve holds through LTD. You should add 100bps in vol (vol-corr) on the down-side stress. The natural is shown but trade the entire fly as calls.