Follow Up Action - Help

H

HLFinance

I've been analyzing the following position but i can't find a good follow up action if the market moves my way.

Buy 1 es future @ 1471
sell 1 es 1475 call @ 20
buy 1 es 1465 put @ 19

If the market goes down you have a nice cushion and limited loss scenario further down.

If the market goes up and breaks the the call strike you should be okay as long your future is gaining, but what should i do if i'm worried about future direction. I mean: i'm still long the market, i just want to give away a part of my gains for further protection.

Is it possible? How should i act?



thanks in advance

hlfinance
 
Quote from HLFinance:

I've been analyzing the following position but i can't find a good follow up action if the market moves my way.

Buy 1 es future @ 1471
sell 1 es 1475 call @ 20
buy 1 es 1465 put @ 19

If the market goes down you have a nice cushion and limited loss scenario further down.

If the market goes up and breaks the the call strike you should be okay as long your future is gaining, but what should i do if i'm worried about future direction. I mean: i'm still long the market, i just want to give away a part of my gains for further protection.

Is it possible? How should i act?

thanks in advance

hlfinance
More...
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Hi;
Another way to do it, take a profit,or cut a loss on ES;
KISS[keep it super simple]

Another way to look on it,1471 is way above 50 day moving average ;
today price is way below that, /very weak rally today.

And i like high probability uptrends;
been some days since i've seen any of those
:cool: Longer i am in longs more i tighten stops.

Farmboy-top trader mark Cook said;
never let a bull turn on you
 
(1) What's the bid/ask spread with those options? (2) You would have been better off merely to offset the futures instead of "hedging" it with the collar. (3) Ideally, if the market rallies slowly and you're not early exercised, you can extract the call premium and have the put collapse to some "teenies" one week before expiration. At that point, offset the futures and short-call. Then, hope and pray for some type of meltdown to make the long-put worth something. You might get lucky.
 
murray

the example above is merely academic, when i started making simulations (last friday) that was the es future and future.options quotes.

nazzdack

when i say sell 1 es 1475 call @ 20, i mean that's the actual bid/ask spread split, so the bid/ask could be 20/21, or 19,5/20,5... in other words more or less irrelevant!
to be honest i don't like your suggestion, as "hope" doesn't play into my trading style!

I actually found a way to do i wanted! Busy night, last night!

Here it is - your toughs please:

As long as the rallie isn't too fast (moderate volatility) the position is profitable before expiration and above the upper strike.

So you wait until the futures get to 1476 (same setting as before) then you close the risk reversal (the options) and open a new one @ 1470/1480 - this should be a credit spread, though the credit should be smaller than before...

Now the position is riskless and in the worse case scenario (market tumble) you get to keep the credit received for new risk reversal plus the previous profit!!

thanks for your inputs
 
(1) My suggestion above gives you a "free" lottery ticket. Your odds are a lot better in the market than what the state gives you. (2) You can't give short shrift to the bid/ask spread because it'll diminish your profits and increase your losses. At-the-money options with a 1-handle spread require a 2-handle move, assuming an option delta of 50%, in the underlying to make your option profitable. That's too much juice to give up. (3) Synthetically speaking, it looks like your position is the same as a 1465/1475 call-debit-spread or put-credit-spread. It should be cheaper to trade two things instead of three. (4) It would be better to hold the options thru expiration instead of offsetting them in order to avoid experiencing additional slippage when re-initiating the collar. (5) Disregarding fees and slippage, the trade more or less looks like a coin toss between making or losing 5 points between 1465 and 1475. Slippage makes it a coin toss between losing atleast 6 points at 1465 and earning no more than 4 points at 1475. In the long run, it's a loser. It's very expensive insurance.
 
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