Risk reward sucks for options
- Thread starter wxytrader
- Start date
I don't understand this thread. When the NDX was going up everyday, at 10am to 2pm you could buy verticals that paid off 8x to 20x for moves as small as 0.5% to 0.75% on the down side by EOD. There's plenty of opportunities for great risk reward ratios in options, thats one of the obvious great advantages for speculators, what am I missing?
Your missing the OP's complete and utter lack of understanding of option basics..Read his earlier threads...He enjoys making absurd posts
Here I fixed that for ya...changed to puts and lined it up with the sweet spot. Hey why can't the platform overlay our option strategies on the chart...that would be cool.
Here I fixed that for ya...changed to puts and lined it up with the sweet spot. Hey why can't the platform overlay our option strategies on the chart...that would be cool.
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You fixed nothing. Don't trade ITM on all legs. The put fly is the inferior synthetic.
We were discussing symmetric strike fly-debits being a fraction of the vertical. Verts are unmodal to delta while flies are bimodal. Hence, if you want a fly structure that guarantees a gain in one tail, then trade a BWB. It's still bimodal delta, but you can structure a bull asym/BWB with a right tail above x.
Yes I am more bearish short term IF I was trading I would go with the BWB structured with the left tail above x ? I'm starting to understand the setup....basically you want to bleed off extrinsic value on the short option, at a cost of losing extrinsic value on the itm option. The otm option is purely for protection.
Beginner's modeling of index skew:
You can model both ATM call and put flies on index, struck to the forward. This will give you a call value > put value. cfly/ply >1. Single P/C risk reversals (neutral) are put revenue side. VERTICAL SPREAD (ps, cs, fly, etc.) risk reversals are call spread revenue side (right tail skew < ATM). Oversimplified but these are normed w/o relying on an annualized vol-fig. Useful for excel modeling. More intuitive and normalized.
You can model both ATM call and put flies on index, struck to the forward. This will give you a call value > put value. cfly/ply >1. Single P/C risk reversals (neutral) are put revenue side. VERTICAL SPREAD (ps, cs, fly, etc.) risk reversals are call spread revenue side (right tail skew < ATM). Oversimplified but these are normed w/o relying on an annualized vol-fig. Useful for excel modeling. More intuitive and normalized.
I sometimes suspect that wxy is not as clueless as he appears, and creates these threads solely to elicit this kind of useful advice.