iron cockroach

[jj90]

Quote from atticus:

Sure it's possible. Trade a bear-delta call BWB with a proximal short strike to complete the short backspread, and distal wing to complete the BWB: long the 100 call, short two 105 calls, long one 150 call at a net-credit. Obviously there is little protection afforded. It's essentially a short backspread with 6-sigma stop.

How to earn on the spread as spot is blowing through strikes? It remains otm throughout the duration of the move. Of course the spread is suicidal if you're wrong, at best you're earning the credit recieved if you're correct on direction.

The example I was talking about was that he apparently had a long delta put BWB into a 700 point DOW move down. AND all strikes were traded through. The static position barring a 0.01% of getting lucky is going to be a loser. That is what I was skeptical about.

 

[atticus]

Quote from jj90:

That is what I was skeptical about.

As you should be.

 

[anti ad hominem]

Quote from jj90:

The example I was talking about was that he apparently had a long delta put BWB into a 700 point DOW move down. AND all strikes were traded through. The static position barring a 0.01% of getting lucky is going to be a loser. That is what I was skeptical about.

jj, I couldn't answer your question directly, but I agree that it sounds improbable. This week is only the third time I have held BWB's through a tumble in the market (none of which have been huge) & each one has worked out well, though the distant long has remained OTM each time (so far!).

I suggestion you post this question to Scot. Ask for an explanation in light of last weeks market action (and in all likelihood what will be this weeks action!?) & for hinm to walk people through the mechanics of this trade he talks about. How & why did it work? Or not. . . It just makes sense that as it is his story, he is the best place to go for an answer. Once he responds, you would then have more of an idea of whether he is BS'ing, rather than the pure conjecture you have right now.

 

[daddy'sboy]

Thanks everybody for your contributions, particularly AAH .
I'm sorry that the thread ended on a somewhat bitter note
- whatever happenend to "no harm, no foul"?
db

'wherever you go there you are'

 

[John D. Dermis]

Yes,
An Iron cockroach is a simultaneous sale of two different size vertical spreads - much like an Iron cockroach. Yet the strategy is vastly superior to the IC because risk is eliminated on one side of the trade (call or put).

I have only seen it taught one place, and that is Random Walk Trading. Great strategy, and you can find more about it by contacting them. Hope that helps.

 

[JohnGreen]

You can get the full lowdown here:
http://www.futuresmag.com/2011/09/19/eliminating-risk-with-the-iron-cockroach

It is indeed composed of two credit spreads, but with a twist. The net credit to start with is enough to fully compensate for going completely through one of the credit spreads to the point of maximum loss on that side.

 

[atticus]

It's simply a condor with more risk assigned to one wing via increased strike width. Akin to a broken wing butterfly. You can still position the initial delta contrary to the "risk" wing.

 

[atticus]

Quote from John D. Dermis:

Yes,
An Iron cockroach is a simultaneous sale of two different size vertical spreads - much like an Iron cockroach. Yet the strategy is vastly superior to the IC because risk is eliminated on one side of the trade (call or put).

I have only seen it taught one place, and that is Random Walk Trading. Great strategy, and you can find more about it by contacting them. Hope that helps.

Which of course only makes it superior if you're correct on price. There is no inherent edge in the product.

What's to teach? You solve for a net credit exceeding the strike width on the opposing (your price view) and call it a day. Of course you risk a shit-load when you're wrong.

 

[ammo]

Quote from researcher248:



We already know that I'm always correct on price, but we can't cap the risk properly due to size.

then you limit your profit,if you are right that often, better to just have a trailing disaster stop or price triggered hedge

 

[atticus]

Quote from researcher248:

But the "shit-load" is limited, which is vastly superior to any nakeds. Please teach me more (everything) about this insect. In 1 post or 2 please.

We already know that I'm always correct on price, but we can't cap the risk properly due to size.

Naked risk is another matter. It's always good to be long wings.

Looking to go long XYZ from 105:

Buy 100/110/115/120 call condor assuming a drop in volI think I'd still rather own the 100/110/120 fly. The asymmetry seems pointless, absent skew. What's the logic of limiting the move (to 115) if you are willing to take the risk on the larger debit (100/110 vert)?

I think the symmetrical payoff position is usually the better play unless there are some kinks in the smile/steep slope. They may actually look good on SPX so I'll price some down and out stuff at the open.