Coach:
The box idea looks interesting and I'm looking forward to watching how it plays out.
The thing I'm not clear on is why you put on additional bull puts as opposed to bear calls. By putting on the box it seems to me that you are very concerned about a drop so why take on more risk in that direction by taking on more bull puts. Why not go the other direction and sell bear calls?
The box idea looks interesting and I'm looking forward to watching how it plays out.
The thing I'm not clear on is why you put on additional bull puts as opposed to bear calls. By putting on the box it seems to me that you are very concerned about a drop so why take on more risk in that direction by taking on more bull puts. Why not go the other direction and sell bear calls?
Quote from optioncoach:
The BOX max value is the difference between the strikes.
As for the BOX v. Rolling, it is technically the same thing since the BOX in effect closes the put spread. I was explaining to someone else that I was comparing costs of rolling into an IRON FLY or a BOX v. closing the spread and my calculations were that if I could get the mid-point of the call spread it was a slight improvement over closing the spread.
So my net effect is to close the 1185/1195 and roll to the 1165/1180. I chose to do it the BOX way partially as a test of the method and also since at the time I saw a slight advantage of the BOX method. Of course an hour after doing so the 1185/1195 put spread quotes changed and maybe I could have gotten out at better than $1.00 which would have led to the same $9,000 loss on closing the put spread.
As I said before, I was working this out all on paper and after a while I decided the only way to test this was to do it and add the BOX. It may be the wrong move or not but I wanted to put real money into it and see the results. If I am wrong, I really only lost slightly more on the BOX v. rolling down and the fact that the net position is still a positive credit above 1180 means I am earning $ for the lesson.
I invite you to follow along and if it was a bad idea, you learned from my trade and if it was a decent idea, then you can work out the details on paper too and run your own analysis.
I am certainly open to criticism but sometimes I need to put the money where my mouth is. Just remember that the BOX is the same as closing the put spread so one has to compare closing the spread outright v. rolling into the BOX. My drunken eyes were seeing an advantage in the BOX at the time.
I know some of you might be scratching your heads as to why I did this so I hope i have explained it from my perspective. I had to place the trade to see the real mechanics and as I have said, I actually saw a better lower loss from the BOX than I did from closing the spread.
