Riskarb's combo to fly conversion journal

Quote from riskarb:

CME Feb 380 straddle at $33.30 and 35% vols. Adding to the list.
More...

360/400 outside stangle is trading 13.00 x 1340 at 34% vol as I type this. Lifting the offer for a $.10 fly.

360/380/400 "long" fly at a $.13 net risk-debit -- using natural-fly conventions. The short body showing a $4.30 gain at FairVal. I would normally initiate a new, neutral combo in CME, but I expect the vols to stay bid here. No new CME position.

I will post a summary page including all running tickers near/after the close. Lots of snow here; garage door busted and waiting for the repairman.
 
Quote from riskarb:

In reality, I am prone to hold those positions that show a decreasing gamma/theta and/or trading near neutrality. I am inclined to fly those positions that show a large mark-down on vol, as the wings will become cheap. Often a drop in vol will produce a riskless fly with an expectancy that makes simply covering the short combo less desirable.
More...

Gotcha, thanks!

- The New Guy
 
What did you sell the 380 strangle for again?

Thanks...


Quote from riskarb:

360/400 outside stangle is trading 13.00 x 1340 at 34% vol as I type this. Lifting the offer for a $.10 fly.

360/380/400 "long" fly at a $.13 net risk-debit -- using natural-fly conventions.

I will post a summary page including all running tickers near/after the close. Lots of snow here; garage door busted and waiting for the repairman.
More...
 
I'd like to add that the CME $4.30 gain would be tempting to book for a week's hold, but the intent is to book as many low-risk fly as possible. Normally I would've sold another CME body combo concurrent with the wing purchase.
 
Well two stupid awards for me, not only did I mean straddle and not strangle, but you posted the straddle price two posts above mine lol.

So you took in $33.30 on the straddle and can grab the strangle for $13.40 on 20-point strike differences. So the net credit for the FLY is $19.90 on a $20 strike FLY- thus a maximum risk of $0.10 if the stock is outside 360 or 400. BUt your maximum profit is $19.90 is the stock is right at 380 at expiration.

So you basically converted an unlimited risk naked straddle into a FLY with $0.10 of risk to make a HUGE potential max of $19.90. You could basically do a lot of these takaing really small losses and pretty much cover them in a major way with the ones where the stock ends up between the strikes at expiration (with the lottery ticket if at the body at expiration).

Have I summarized that correctly?


Quote from riskarb:

Straddle? $33.30
More...
 
Yes, well summarized. I'll be more diligent in hedging as gammas accumulate as we approach expiration. IOW, I'll be inclined to take spot-positions against the fly-greeks if any tickers or portfolio-deltas are leaning heavily. Allows for some dramatic convergence gains if sufficient contract numbers are traded.
 
Great play! I wonder how you protect yourself against adverse price and / or IV moves? Last Friday CME was ~$382 and IV 35%, today it is ~$380 and IV 34%.
 
Quote from cnms2:

Great play! I wonder how you protect yourself against adverse price and / or IV moves? Last Friday CME was ~$382 and IV 35%, today it is ~$380 and IV 34%.
More...

Thanks. There is no delta/vega hedge, only diversification. I've traded up to regT margin limits, as long as one limits the trading in any single issue to 1 contract per ticker per $10,000 in account equity. All of the tickers are going to correlate into a 2-3+sigma index move, so it's always prudent to buy some downside vegas through VBI futures or cheap gammas/vegas, such as long Dow strangles.

It's not to say you can't feel-free to trade discrete gammas or vegas; it simply didn't fit into the journal method. Too complex for the topic at hand.

The ultimate goal is to maximize the fly contract basket and trade deltas against the basket into the final days of expiration via index-hedge. The goal is a diversified fly portfolio which lends to short-term index hedging[<7d to exp].
 
BMHC 77+ Feb 75... $10.20... 52%
CEPH 73+ Feb 75... $8.20...44%
NOV 69+ Feb 70... $6.80...40%
PD 143+ Feb 140 ... $14.60...43%
SNDK 77+ Feb 75... $13.70...74%
TIE 71+ Feb 70... $10.90...64%
CME 382+ Feb 380...$33.30...35% -- converted to 360/380/400 fly at $.13 debit risk

OIH 148+ Feb 145...12.60...36%
 
You must log in or register to reply here.
Back
Top