SLV Straddled Here

Quote from shortie:

what you are saying is clearly wrong. once June 33P is in the money, it gains the same amount Short May 38P loses if SLV goes lower from there. By the time SLV @33 both calls are close to worthless so we only look at puts. The bottom line is that ~33 is where the position clearly can't lose any more money. This is not counting the premium I received for Short straddle. So I am guessing ~34 is where my max loss is, not far from what's on the image (before SLV took another 2% dive)
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Sorry but you have it wrong. The maxium loss for the position is the difference in strikes less the premium received. If I read your chart right, that's $3.44 and it occurs when all options go to parity which is probably 10+ pts away from the 38 straddle sold.

The reason for this is that the delta of the Jun options is lower than the May's and the Jun's retain time premium much longer.
 
Quote from spindr0:

The maxiumum gain for the position will be nowhere near $3.80 since you have 2 June legs decaying for nearly 3 weeks. Assuming no IV bump helping the June's, you might get almost $3 but that's only with a perfect close at the short straddle's strike - a very unlikely event. Tho probably irrelevant, expected return for this type of position is a tad over ZERO due to the higher IV of the near month.
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Not to mention that if SLV calms down (allowing shortie's mays to expire profitable, the implied vol in the junes will come in a lot. and given that the nature of his june strikes, the pnl loss from this can be quite stark. I haven't modelled it out, but i agree it is unlikely the max gain is really 3.8... theoretically it is infinity but implied vols will come in if his straddle is pinned.
 
Thank you guys for your feedback. I realize that I need to look more closely at the max risk in the positions because I maybe underestimating it.

here is another snapshot with SLV at almost exactly the same level as yesterday snapshot. the position has improved but is still under water. two weeks left in May and i would not be surprised if it is profitable very soon.
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Unrealized PL in the last 3 days: -5 > -70 > -54
 

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FWIW, had you rolled the calls down yesterday as I suggested, with today's bounce you would have recovered more on today's early bounce. Adjustments are the dynamic part of managing a position.
 
Quote from newwurldmn:

Not to mention that if SLV calms down (allowing shortie's mays to expire profitable, the implied vol in the junes will come in a lot. and given that the nature of his june strikes, the pnl loss from this can be quite stark. I haven't modelled it out, but i agree it is unlikely the max gain is really 3.8... theoretically it is infinity but implied vols will come in if his straddle is pinned.
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If $3.80 is greater than the premium received from the sale of the May 38 straddle, the only way that the entire position could generate that gain would be a perfect May expiration at the 38 strike and a big bump in June IV and that's sooooo very not likely.
 
That is correct. You would need an increase in implied vol to equal the theta decay of the junes. That is not likely so your upside is lower than you think it is.

However, as SLV sells off your downside risk is better than you think because as the stock sells off the June vol will probably rise ehancing the pnl of the june puts.

On the upside gap, your it is unclear what will happen. My guess is that you will lose more money than you think because implied vol will come in. But commodities are weird this way.

Your max loss is the total intrinsic value - the premium you paid for the structure, but at points in between in time and spot price your pnl will have many factors.

Personally it's been my observation that when a stock falls 6%, it is likely it will move 6% a few more times (though the direction is often unclear). Selling volatility/gamma/whatever isn't a great trade.
 
shortie so when you think you will have the confidence to actually pull the trigger and place a trade? how many years you been studying to gain the confidence you need, please feel free to take a poll as i see you need lot's of peer input to take any actions.
 
Quote from MarkBrown:

shortie so when you think you will have the confidence to actually pull the trigger and place a trade? how many years you been studying to gain the confidence you need, please feel free to take a poll as i see you need lot's of peer input to take any actions.
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i have place >20 trades today, including those based on the above idea. and no, my holy grail is not for sale. :D :D :D
 
Quote from shortie:

i have place >20 trades today, including those based on the above idea. and no, my holy grail is not for sale. :D :D :D
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oh wow post your statements and let us all see i want your brokers number so i can call and check you liar.
 
Quote from MarkBrown:

oh wow post your statements and let us all see i want your brokers number so i can call and check you liar.
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funny to hear this request from somebody who has not posted even one live call after so many years. this belongs to the list of the best ET humor.

i could be wrong about the live calls. don't have the time to check all those holy grail marketing posts. :D
 
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