The Perfect Option position
- Thread starter Maverick74
- Start date
Nitro,
FWIW, I exchanged about 6 PM's with the guy. He is 26 years old and has less then 2 years trading experience. I'm not saying that makes him stupid, I'm saying I would respectfully disagree with your statement.
I asked him specifically in PM what his problem was with the position and he could not answer. I asked him six times. If he wants to come on here an articulate his message a little bit better, that's cool. But the options threads have a little bit of decorum here we like to maintain where we don't attack other people just because we don't like their trade, their strategy or their style of trading.
To me, this is the most valuable post in this thread by you Maverick because once you know a little bit about options, coming up with different risk profiles by using option spreads is a matter of understanding maybe ten principles and a good options charting software.
IMO, the real "problem" with the position (other than highfreq pointing out the risk holes at expiration and weewilly
s post) is hidden inside this post. In order to put on this poisition, several complex trading decisions have to be made in order to leg into/out of it, not once, but twice.
Further, to complicate the matter, you may have to do a rollover. Think about it for a minute. If any one of these legs is put on even slightly off, when the position is put on, all you may have done is locked in a loss, or even worse, have exp risk holes. Now you try to undo the position again, and you leg out of it wrong again and are paying the spread to get out.
If you are that good legging into spreads to begin with, you may be better off trading directionally on "simple" option positions to begin with!
However, it is still interesting thread, and it may actually be possible to scan for situations where putting on this kind of trade may offer an opportunity to leg into it correctly (which is only half the battle, as you have to fight for the profit by legging out again.)
Probably the single most important aspect to consider when doing this strategy _off_the_floor_ is to choose the right stock/underlying, which gets back to cheap vs expensive IV _and_or_ possibly _only_ understanding the term structure of the underlying.
nitro
IMO, the real "problem" with the position (other than highfreq pointing out the risk holes at expiration and weewilly
s post) is hidden inside this post. In order to put on this poisition, several complex trading decisions have to be made in order to leg into/out of it, not once, but twice.
Further, to complicate the matter, you may have to do a rollover. Think about it for a minute. If any one of these legs is put on even slightly off, when the position is put on, all you may have done is locked in a loss, or even worse, have exp risk holes. Now you try to undo the position again, and you leg out of it wrong again and are paying the spread to get out.
If you are that good legging into spreads to begin with, you may be better off trading directionally on "simple" option positions to begin with!
However, it is still interesting thread, and it may actually be possible to scan for situations where putting on this kind of trade may offer an opportunity to leg into it correctly (which is only half the battle, as you have to fight for the profit by legging out again.)
Probably the single most important aspect to consider when doing this strategy _off_the_floor_ is to choose the right stock/underlying, which gets back to cheap vs expensive IV _and_or_ possibly _only_ understanding the term structure of the underlying.
nitro
nice post, nitro.
seems to me the front month position just complicates things. if the play is for wild volatility at some distant point in the future, and the implicit assumption is we do not know when "the future" begins, the front month position is a needless risk. i understand wanting to make some coin, but my preferred - and admittedly naive - approach would be to forgoe the front fly and save the buying power for another batch of ratio spreads a month further out.
ie instead of april/oct, just do oct, wait a month, then lay on a similar november position.
again, this is assuming the play is for "unexpectedly" high volatility at some unknown point in the future.
as always, i welcome comments from those less "naive" than myself.
seems to me the front month position just complicates things. if the play is for wild volatility at some distant point in the future, and the implicit assumption is we do not know when "the future" begins, the front month position is a needless risk. i understand wanting to make some coin, but my preferred - and admittedly naive - approach would be to forgoe the front fly and save the buying power for another batch of ratio spreads a month further out.
ie instead of april/oct, just do oct, wait a month, then lay on a similar november position.
again, this is assuming the play is for "unexpectedly" high volatility at some unknown point in the future.
as always, i welcome comments from those less "naive" than myself.
I disagree with this. I use to trade a lot of backspreads when I first started trading options and I found unless you were doing backspreads on FDA plays, they wold normally be 100% losers. Of course I am referring to backspreads on front month options. Back month backspreads are a little better, but why would you want to sit in a position for months on end and still risk losing all your money on the trade.
I think the front month fly increases the performance over the regular backspread by a wide margin. Like I have said before, I use to be a long gamma trader. My frustration over trading backspreads basically led me to selling front month flys with the backspread and eventually to just selling premium.
I would love to see someone come on ET and start a journal of just trading backspreads and see how long that journal lasts. LOL. I'll lay down my bet and say one expiration period. LOL.
been reading all of the last posts... fights, who'se wrong , who'se right. Quite frankly i don't care. Maverick had the guts to put his ass on the line explaining the details of his strategy. As all strategies of course it is not perfect. ( name of the thread might be the source of confusion). But at least it's a good subject of discussion and might help in generating new ideas. I have seen few threads where people actually give their strategies (i.e wilmott) where most of the time evryone is in its little bubble and just there to try to make an impression (trading is a solitary job, being a quant too...). As for the ones trying to find a Guru on these threads or a money-making strategy without any risks, and actually falling for one... be less lazy and do your homeworks. If one falls for it, I call it natural selection.
Now to change subject.. CBOE (CFE) launched futures on realized variance. Any one aware on a thread on it?
Thank you
Now to change subject.. CBOE (CFE) launched futures on realized variance. Any one aware on a thread on it?
Thank you
Saw an interesting derivivative interview last friday,[ channel 7 ]a hedger & another speculator .
Easy to remember the mature speculator's name;
30 years experience & his last name was Mr. Gold & noticed a few silvergrey hairs
Liked to buy calls when they are cheap he said;
in a bull market context.
Easy to remember the mature speculator's name;
30 years experience & his last name was Mr. Gold & noticed a few silvergrey hairs
Liked to buy calls when they are cheap he said;
in a bull market context.