If this is a normal Long Put FLY then I am lost in your math. Using your prices the FLY would cost $2.60 + $13.10 - 2*$12.10 or a net credit??????
Could you walk us through it....
Could you walk us through it....
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
You are quite right. I corrected the above numbers. I -- sort of -- doubled the price on the 1250 to account for the 2 sold. However, I have corrected it to be the price for one contract.
Thanks for pointing it out.
OK I am with ya now LOL. $350 is a cheap price for some education if you want to follow along 
.
.Check out that nice bounce off of resistance in the new downward sloping channel in the SPX. If Ben B. gives the market the spooks then watch us run back towards 1250 in the next week. Otherwise that 1280 is the first step of resistance.
We are either in a bearish downward price channel or a pause in the bullish move that fluttered after teh 1295 high in early Jan. The good news is that while it resolves itself, we are going to be rangebound pretty wide, allowing room at the Inn for Uncle Theta.
We are either in a bearish downward price channel or a pause in the bullish move that fluttered after teh 1295 high in early Jan. The good news is that while it resolves itself, we are going to be rangebound pretty wide, allowing room at the Inn for Uncle Theta.
Quote from optioncoach:
OK I am with ya now LOL. $350 is a cheap price for some education if you want to follow along
Just to continue on in the educational vein.
The Fly seems roughly delta neutral inside the upper strike. Is that correct? Does gamma play out in a similar fastion -- upper strike declining lower strikes increasing?
If so, it's almost entirely the theta that improves this kind of position.
The position is helped out by theta and IV decreases. However, the purpose of my FLYs is to cast a wide net over expected market range and pick off BABY FLYs when I can.
The criteria for picking off a BABY are:
1. Premium. The idea is to sell a BABY if the premium is worth it. What decides if it is worth it is if I would sell a FLY at that strike for that premium now as a new position assuming I did not have the larger mommy FLY. If the answer is yes, I wouild sell the FLY. If no, then it is not worth it to sell.
2. Time to expiration. Right now we are still a was out from expiration so none of the BABY FLYs are going to be grown enough to sell. So for now I am just sitting back and letting theta do its thing.
The criteria for picking off a BABY are:
1. Premium. The idea is to sell a BABY if the premium is worth it. What decides if it is worth it is if I would sell a FLY at that strike for that premium now as a new position assuming I did not have the larger mommy FLY. If the answer is yes, I wouild sell the FLY. If no, then it is not worth it to sell.
2. Time to expiration. Right now we are still a was out from expiration so none of the BABY FLYs are going to be grown enough to sell. So for now I am just sitting back and letting theta do its thing.
Coach and Family,
I am looking at the pros and cons of hedging and wanted to know if you have a rule of thumb when it comes to putting on a full or partial hedge.
For example, let's say there is still 3 weeks to expiration and SPX has rallied up to 10 points of your sold strike. With so much time left is it better just to roll it up or out, or can hedging with the SPY be useful in this situation?
It seems to me that hedging would be most beneficial in cases where you only had a few days left to expiration, but I would like to hear your thoughts.
Thanks,
-Cash
I am looking at the pros and cons of hedging and wanted to know if you have a rule of thumb when it comes to putting on a full or partial hedge.
For example, let's say there is still 3 weeks to expiration and SPX has rallied up to 10 points of your sold strike. With so much time left is it better just to roll it up or out, or can hedging with the SPY be useful in this situation?
It seems to me that hedging would be most beneficial in cases where you only had a few days left to expiration, but I would like to hear your thoughts.
Thanks,
-Cash
Finally got out of my only Feb position, 1205p/1215p. My order got closed for .05 while I went out to lunch. I'm not sure where I want to be for Mar yet, been following what everyone is saying here. It has been hard to get a handle on the market lately. I will probably wait until Thurs afternoon or Friday before putting on my March positions, want to let the market digest Bernanke's statements and see what happens. I do agree with Coach, I think we are looking at a range bound market for a little while now, just not sure which range yet.
ryan
ryan
With 3 weeks to go and within 10 points of your strike a partial hedge may not be significant enough to offset the potential losses from further moves. Depending on your market analysis, it might be best to roll out for more distance if you feel the market will not push too much further and you can let theta kick in on pullbacks. The danger here is if the market was screaming at you with 3 weeks left or looks likely to keep on truckin at you. In those cases you may need to roll further out in distance or get out altogether.
Partial hedges work to help offset the cost of adjusting and therefore are better put on before you need to adjust. So I usually slap them on when the technicals start to make my position bother me a bit and I would still have 20 points or more wiht 3 weeks left to go. This way if the market still is moving storng against me I can roll out and let the partial hedge earn some money. If the market retreats by expiration I have a limited loss which I can accept. If the market keeps moving, then I can adjust again and take profits on the partial hedge to help offset those costs and keep my loss limited. If you have a spread on the other side, rolling it up for more credit also helps you out-althougn with 3 weeks to go it is hard to say how much credit will exist.
You could also convert your position to a butterfly or PREGO FLY to turn your large limited risk position into a small limited risk position with the potential for profits depending on how the FLY is structured. YOu could look into a BOX adjustment if it is appropriate.
One caveat to all this is that if the market is screaming at you then get out of the way. Severe moves against you with 3 weeks left to expiration and more moves to come means you might be in danger and perhaps you could roll out once for some cushion but be prepared to just get out of the way or conver the position to a limited risk one.
Bottom line, 3 weeks to go you should be wary about letting a position get within 10 points and not taking any action. I would say that with 3 weeks to go and 20 points away from your short strike should awaken some action on your part, be it partial hedges to potentially finance an adjustment if needed or some other adjustment.
Partial hedges work to help offset the cost of adjusting and therefore are better put on before you need to adjust. So I usually slap them on when the technicals start to make my position bother me a bit and I would still have 20 points or more wiht 3 weeks left to go. This way if the market still is moving storng against me I can roll out and let the partial hedge earn some money. If the market retreats by expiration I have a limited loss which I can accept. If the market keeps moving, then I can adjust again and take profits on the partial hedge to help offset those costs and keep my loss limited. If you have a spread on the other side, rolling it up for more credit also helps you out-althougn with 3 weeks to go it is hard to say how much credit will exist.
You could also convert your position to a butterfly or PREGO FLY to turn your large limited risk position into a small limited risk position with the potential for profits depending on how the FLY is structured. YOu could look into a BOX adjustment if it is appropriate.
One caveat to all this is that if the market is screaming at you then get out of the way. Severe moves against you with 3 weeks left to expiration and more moves to come means you might be in danger and perhaps you could roll out once for some cushion but be prepared to just get out of the way or conver the position to a limited risk one.
Bottom line, 3 weeks to go you should be wary about letting a position get within 10 points and not taking any action. I would say that with 3 weeks to go and 20 points away from your short strike should awaken some action on your part, be it partial hedges to potentially finance an adjustment if needed or some other adjustment.
Quote from optioncoach:
Check out that nice bounce off of resistance in the new downward sloping channel in the SPX. If Ben B. gives the market the spooks then watch us run back towards 1250 in the next week. Otherwise that 1280 is the first step of resistance.
We are either in a bearish downward price channel or a pause in the bullish move that fluttered after teh 1295 high in early Jan. The good news is that while it resolves itself, we are going to be rangebound pretty wide, allowing room at the Inn for Uncle Theta.
Of course the dow made a new multi year high today...