The Perfect Option position

Spin,
TOS gives you all the greeks for each position automatically. I often have multiple legs, and it puts them all together in a very easy to digest format.

On the other hand, I also agree that simpler is generally better. More legs can be a pain in the neck to manage without giving much in the way of additional benefits.

Commissions and slippage can be painful!!

One thing that matters to me in addition to dmo's overall analysis is the distance OTM of my individual options holdings. This tells me what needs more careful attention for possible adjustments.
 
Quote from asdfghj7:

The last word.
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There is No any "Perfect Option position" without (un)hidden risks as one wished/ expected!

"Ask not what your options can do for you, but what you can do with your options." --- OddTrader
 
Quote from OddTrader:

There is No any "Perfect Option position" without (un)hidden risks as one wished/ expected!

"Ask not what your options can do for you, but what you can do with your options." --- OddTrader
More...

http://www.elitetrader.com/vb/showthread.php?s=&threadid=87573&perpage=40&pagenumber=3

Quote from Maverick74:

I have some very bad news to report here. I, however, stand by this statement and have more then enough trading sheets to back me up counting 100's, possibly thousands of traders.

The only way you can be profitable over the long run trading options is if you can predict volatility or price better then 95% of the other market participants. End of story. There is no getting around this. This is a non debatable fact. Anyone that tells you that you can just trade condors or calendars and make money should be reported directly to the SEC.

I know you don't want to hear this. Nobody does. It's kind of like telling an average slop that he will never marry a supermodel, but I think I have been in this business long enough and around enough traders to not only make this statement, but back it up with cold hard numbers.

Now, there is nothing inherently wrong with trading condors or calendars. It's just that both of those trades happen to be volatility trades. If you predict volatility correctly, they will make you money. If you don't, they will not. It's that simple. There are some very very bright people in this business that spend tens of millions of dollars and hire 100's of quants to predict volatility for them and they have a very tough time making money. But wait, some newbie with no option knowledge in the world is going to just slap on some volatility trades and consistently make money? I mean think about that for a second. Just try to use some common sense here.

Let's pretend we are in the medical profession, which is not even a good comparison because there are far more successful doctors in the world then traders. Do you honestly think you could perform brain surgery on a patient after a few webinars, some e-mail exchanges, a few live phone calls and a booklet? Anyone? Of course not. Even a trained surgeon with 7 years of medical school, 3 years of residency and possibly thousands of hours of surgery under his belt still has trouble and loses many patients in surgery. Yet some guy on ET is going to go through a quick course and just like that, become a surgeon. Laughable of course.

But this is exactly what you believe with your options trading. Guys, you need to wake up. I have nothing to sell here or convince you of. I'm providing some cold hard reality. Yes, I run a prop office and have seen the sheets of 100's of option traders. I've been on the floor of both the CBOE and CBOT. I also have educated 100's of traders for free on the northside of Chicago for almost 4 years now. Almost all of them former optionetics students or seminar participants. None of them are profitable or ever where.

I will say it again, the only way you will make money trading options is to be able to predict either direction or volatility better then 95% of all the traders out there. There is no way to get around this mathematically. Sure, due to the limited data sample many of you have, you will string together a few positive months. But in the end, you are playing with a negative expectancy. Good luck.
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it has been a long time since I visited ET, I have been trading options for quite a while and still am trading and profitable to say the least.

Maverick74 is this thread still alive? I trade mainly naked with a ratio to provide some kind of hedge, but the hedge is temporary and no naked position can withstand a big move I am saying move like oct 2008.

the strategy presented here is fairly interesting. I give it some thoughts thou it is not perfect and do has some risk but the risk is well confine and if a big move occur this will hit a home run.

If the thread is alive we can kick back to discussion
 
Quote from Maverick74:

Anybody else have any questions about this position? It is such a great strategy that I don't want anyone not to understand it. Feel free to start another thread on your favorite option strategy. This open discussion is good for everyone.
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I finally has time to go thru all the posting. I guess Maverick74 has left this thread. Maybe there is better strategy but again I guess there is no better strategy it is how you manage the position. the thread started in 2002 I wasn't even trading options back then, I wonder is Maverick born in 1974 judging from the nick?

Anyway here is my thought on this perfect position. Of course we do understand there is no risk free trade, if there is ever a risk free trade than 1 can do it a million contract or how many his account can take in since it is risk free. There can be low risk but not risk free at least I haven't found one yet. This position in general benefit from a big move up or down since the back month has a extra long, so the bigger the move the better it will be for this position. If stock remain the front month earn the time decay which help to offset the back month decay loss, of course it depend on the IV.

The position will suffer if it go up or down slowly at the 105 or 95 level where the front month butterfly hit max loss and the back month spread long leg is ATM. The back month may or may not have a profit depending on IV at that time. But let do the maths, what is the probabilty that stock remain at 100 (very slim), stock remain at 97 - 103 (quite high where you earn some premium from front month). Stock shoot below 90 or above 110 (slim), stock at 95 - 97 or 103 -105 (pretty high).

1 way out would be as stock move at certain strike interval keep throwing in the position. so as time goes by you build up a series of position and some will take it max loss and some will hit home run, hopefully when you net off you have some profit. But this position has a total of 10 leg, if you build up position it get messy and you get a free migraine as well.

What do you guys think?
Everyone has their perfect position, well this position do look interesting but I guess I wont probably take it until I do further more research as my brain cell is getting fewer and fewer
 
Quote from benysl:

I finally has time to go thru all the posting. I guess Maverick74 has left this thread. Maybe there is better strategy but again I guess there is no better strategy it is how you manage the position. the thread started in 2002 I wasn't even trading options back then, I wonder is Maverick born in 1974 judging from the nick?

Anyway here is my thought on this perfect position. Of course we do understand there is no risk free trade, if there is ever a risk free trade than 1 can do it a million contract or how many his account can take in since it is risk free. There can be low risk but not risk free at least I haven't found one yet. This position in general benefit from a big move up or down since the back month has a extra long, so the bigger the move the better it will be for this position. If stock remain the front month earn the time decay which help to offset the back month decay loss, of course it depend on the IV.

The position will suffer if it go up or down slowly at the 105 or 95 level where the front month butterfly hit max loss and the back month spread long leg is ATM. The back month may or may not have a profit depending on IV at that time. But let do the maths, what is the probabilty that stock remain at 100 (very slim), stock remain at 97 - 103 (quite high where you earn some premium from front month). Stock shoot below 90 or above 110 (slim), stock at 95 - 97 or 103 -105 (pretty high).

1 way out would be as stock move at certain strike interval keep throwing in the position. so as time goes by you build up a series of position and some will take it max loss and some will hit home run, hopefully when you net off you have some profit. But this position has a total of 10 leg, if you build up position it get messy and you get a free migraine as well.

What do you guys think?
Everyone has their perfect position, well this position do look interesting but I guess I wont probably take it until I do further more research as my brain cell is getting fewer and fewer
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This thread is really old. When it was started, it was meant to be an academic exercise, not a revealing of some secret strategy. No option strategy "works or doesn't work". Good traders make money, bad traders don't. I didn't invent the strategy. It was covered in detail in Baird's book "Option Market Making".

The general idea is to be short front month premium and long back month premium. That's a very broad idea and ambiguous for most traders. Market makers manage a large book of options and so they will have positions in just about every strike on the chain. So to help them keep order to their book, they generally tend to build flys where they can. Being that they can earn the edge on each individual strike, it makes sense.

This is not a position that one just "puts on". At best you could leg into various aspects of this position. But then of course you have to get out. I have learned over the years that getting into option positions is easy. Getting out, much harder.
 
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