I screwed up, I'm still learning.

Quote from Arnie Guitar:

I thought when you sell an OTM put, and buy the next further OTM put,
then sell an OTM call, and buy the next further OTM call,
on the same stock with the same month expiration, that's an Iron Condor.
And I thought when you sell an OTM call and an OTM put on the same stock with the same month expiration, that's a strangle.

I'm wrong?

I guess I really am a dope!
I'll stay quiet for awhile.......:(

Arnie
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That's correct. I didn't read the thread so don't know what previous posts said.
 
Quote from jhickman:

It's called a short strangle, i.e. unlimited risk to the upside and big risk to the downside.
J
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Wouldn't that instead be limited upside and unlimited downside? The payoff is an upside down V. Condor seems more sensible to me, since you would be limiting your downside.
 
Hi Chagi
Thanks for your interesting feedback to this discussion.
So, let's see if I got this right - I am short one naked call thus unlimited risk if stock goes up (upside risk?) and short one naked put thus limited but substantial risk if share goes down (downside risk?). What do you reckon? I use the modern view of the risk graph - i.e. it's on its side with the profit line on the x (horizontal) axis and the stock price on the y (vertical) axis. I think the general gist of the naked short strangle is, i.e. a high risk strategy, especially for the newer members of the option trading community. Of course, it's also important to get the semantics correct. Hope J pays attention, lol
Cheers
ra
 
Quote from ra1:

Hi Chagi
Thanks for your interesting feedback to this discussion.
So, let's see if I got this right - I am short one naked call thus unlimited risk if stock goes up (upside risk?) and short one naked put thus limited but substantial risk if share goes down (downside risk?). What do you reckon? I use the modern view of the risk graph - i.e. it's on its side with the profit line on the x (horizontal) axis and the stock price on the y (vertical) axis. I think the general gist of the naked short strangle is, i.e. a high risk strategy, especially for the newer members of the option trading community. Of course, it's also important to get the semantics correct. Hope J pays attention, lol
Cheers
ra
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I think we might be using upside and downside to mean different things. With me, I mean profit. So a short strangle has a limit on profit potential (upside) and unlimited loss potential (downside).

I'm by no means an options expert, but let's consider a hypothetical stock trading today at $65, and you put on a short strangle with short put at $60 and short call at $70. So your initial credit is whatever you obtain (premiums) for the puts and calls that you sell. Let's now consider three possibilities:

- stock remains at $65. This is your highest profit potential result (or very close to it depending on what your puts and calls were priced at)

- stock drops below $60. Your loss generally speaking equals (value of put - total premiums you had received)

- stock rises above $70. Your loss generally speaking equals (value of call - total premiums you had received)

When I said upside down V, I was referring to a graph where stock price (underlying) is the x-axis and profit/loss is the y-axis. So stock @ $65 would be the upper tip of the upside down V (maximum profit potential). Stock below $60 or above $70 would have losses increasing the further that the stock moves outside of those boundaries.

P.S. Don't ask me to explain greeks, I'm still wrapping my head around some of those. :p
 
Quote from Arnie Guitar:

........I have a large position in a stock that announces tomorrow,
I think I'm OK. I've got an IC on it, and I'm pretty far OTM.
Going on what's been happening with MOT, AAPL, INTC, after they announced, I think I'm gonna be alright.

I'll let you know.

Thanks again, everyone,

Arnie
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Well, I'm not alright, I had my head handed to me.
Clobbered.
A major hit. :(
Gee, can you guess the stock?
I'll give you a hint, it's all over the financial news since they announced.

Another lesson in humility.:(

I really need to study more, and take smaller steps,
trying for base hits, instead of swinging for the fences.
Funny thing is, I really didn't feel like I was............

Humbly your's,

Arnie
 
BTW Arnie, an IC can be profitable prior to earnings, if there's some time. But since you put your's on right before, well.
 
Quote from Arnie Guitar:


Gee, can you guess the stock?
I'll give you a hint, it's all over the financial news since they announced.
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My guess is GOOG. I think you would get more help and advice if in your original post you stated the exact position you have. What you might think is a "April call vertical, and an April put vertical" might actually be something else.

Stock, Strike Prices, Expiry, Date Entered and Fill Prices are all helpfull. Number of contracts can be kept confidential, but you should state the ratio of calls to calls, calls to puts, etc.
 
Well, I was reluctant to post what I did after the fact,
because even I am perfect when it comes to hindsight,
saying, "well, you should have done this and this...."
after knowing what the earnings were.
You know the old saying, "Just give me next year's Wall Street Journal, and I'll know what to do now.".

But here goes, yes it was GOOG, and all positions were entered
while GOOG was in the low 400's.
There was a little over a grand profit at entry of both call and put positions.
On Thursday, I had a couple hundred dollar profit in the put position,
and about a grand loss in the call positions.
Here was my position at Thursday's close:

Long 10 April 440 calls
Short 10 April 430 calls

GOOG-415, no shares owned.

Short 10 April 380 puts
Long 10 April 370 puts

Man, if I'da been a set of strike prices higher in the calls,
and the puts........darn, there's that benefit of hindsight again.

Now if you'll excuse me, I'm still mopping up some of the blood. :(

Arnie
 
Funny you mention goog, I have almost the opposite position right before earning.

long 10 April 420 calls
short 10 April 430 calls

long 10 April 390 puts
short 10 Aprl 370 puts


Bias toward miss earning. With the stock being added in S&P recently (huge gain), I just can't see it moves up much right before option expiration.
 
Seriously Arnie..don't beat yourself up. GOOG is a VERY difficult stock to trade esp in options. If you really want to understand options you need to either do indicies or stocks you have a good
"feel" for. Always....always try in small lots so you won't lose big time and for an IC DON't pick a highly volitile stock. Iron Condors are best on stocks that are stable and don't move very much. stocks like GOOG will always take you to the woodshed.
 
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